Pure Storage Reports Strong Q4 Growth but Underlying Margin Risks Persist

What happened

Pure Storage announced fiscal Q4 2026 revenue exceeding $1 billion, up 20% year-over-year, with full-year revenue surpassing $3.6 billion and 16% growth. The company also reported robust remaining performance obligations (RPO) growth of over 40% in Q4, indicating strong future revenue visibility from subscriptions and contracts. However, the DeepValue report highlights that Pure Storage faces significant margin pressures from hyperscaler deployments, particularly with Meta, which are set to ramp in FY27. Management has explicitly warned of a gross-margin reset and increased operating expenses to support these hyperscaler deals, potentially eroding profitability. Despite the impressive top-line performance, the stock's high valuation multiples and these underlying risks suggest that investors should look beyond the surface-level growth numbers.

Implication

The rapid RPO growth signals healthy demand but is likely driven by lower-margin hyperscaler contracts that will pressure future gross margins starting in FY27. Pure Storage's reliance on hyperscaler deals like Meta introduces execution risk and potential revenue concentration, undermining diversification benefits. With management guiding for significant incremental opex investments, operating margins are expected to face headwinds, challenging the current valuation of ~158x P/E. The stock's rich multiples leave little room for error, making it vulnerable to any slowdown in growth or margin deterioration beyond guidance. Therefore, while the headline numbers are positive, the investment case remains fragile, and new capital should be deferred until FY27 guidance provides clearer profitability metrics.

Thesis delta

The strong Q4 results confirm Pure Storage's growth momentum but do not address the core margin risks outlined in the DeepValue report. The thesis remains unchanged: high valuation and impending gross-margin reset from hyperscaler revenue models make the stock a potential sell, with FY27 guidance critical for reassessment.