Our TP of $110, up from $85 prior, is based on a 32x PE applied to FY28 ests (vs 29x prior), reflecting heightened current Storage sentiment given widespread acceleration of inference-led AI and Unstructured data deployments across the industry. We believe the 32x target multiple (above its 3-year median multiple of 27x) is warranted given the company’s transition to sticky, higher-margin subscription revenues and higher-end Products. The 32x PE target multiple implies 26x EV/EBITDA and 7x EV/S, based on 40%/60% weighting of Hardware and SaaS companies. Given ongoing investment into Sales, we believe proper execution should subsequently improve both product and subscription revenue as well as bolster existing margin momentum (mix to software and higher-end solutions) and supporting expectations for higher multiples.

PSTG stock carries negligible liquidity concerns. Specific factors that could cause the stock to outperform/underperform our estimates and/or target price include the following:

1) Competitive landscape less/more aggressive than expected and Pure Storage gains more/less share than anticipated, including pricing dynamics, and competition against larger incumbents with established customer relationships, full-stack offerings with the ability to discount, or incumbents’ increasing their flash offerings to compete with Pure Storage.

2) Better-than-expected/deteriorating enterprise spend on storage, which is largely dependent on interest rates and macro conditions impacting sales cycles, as well as customers’ own budgets and impacting appetite for storage spending.

3) Variances in cost of materials, including, and especially, NAND flash, which has a direct impact on gross margins. Moreover, given the few manufacturers of flash memory, Pure does not generally place long-term contracts on its materials and as a result may need to obtain materials at prevailing market rates, which may pressure margins.

4) HDD price competitiveness may increase/decrease differently than expected. While the industry generally expects the per/GB cost of flash to cross below that of HDD in the mid- to long-term, developments in HDD technology like areal density and HAMR technology may push this out further than expected, allowing HDD solutions to remain competitive for longer than expected by Pure.

5) We keep a keen eye on items that may revert backwards, including customer preferences like decreased CIO focus on cloud and digital transitions in the enterprise, a slowdown in overall cloud storage spending end-demand, or deterioration of Pure’s operating expense controls, which would erode profitability below our expectations.