Pure Storage(NYSE: PSTG), a provider of all-flash data storage technologies and services, held its fourth-quarter and full-year fiscal 2025 earnings call on February 26, 2025. The company discussed its progress in transforming enterprise data architecture, growing adoption of its subscription services, and continued development of its hyperscaler and AI opportunities.
Fusion v2 Marks Strategic Shift in Enterprise Data Management
Pure Storage's new Fusion v2 software represents a significant evolution in how enterprises can manage their data storage infrastructure. The platform enables companies to manage multiple storage arrays as an integrated system rather than separate silos.
Fusion enables enterprise to operate all of their data storage on a workflow basis just like the cloud. This marks not just an evolution, but a revolution in IT infrastructure, redefining enterprise storage standards and data management.
Early adoption shows promise, with "dozens of companies" implementing Fusion v2 since its release. As the CEO noted, having Pure Storage arrays under Fusion creates a network effect, making it less likely for customers to add arrays that aren't part of that system.
Record Subscription Growth Despite Mixed Annual Performance
While overall subscription performance had some challenges in fiscal 2025, the fourth quarter showed notable strength in key metrics.
We also closed out the year with record quarterly TCV sales of Evergreen//One of $140 million, a 20% increase. FY '25 TCV sales for Evergreen//One and our other service-based offerings reached $393 million, representing a 3% decline.
Subscription services annual recurring revenue grew 21% to $1.7 billion.
Hyperscaler Opportunity Progressing with Expanded Use Cases
The previously announced hyperscaler design win continues to develop, with testing and deployment planning advancing as anticipated. Management says discussions and engagements with other hyperscalers are "definitely moving forward with a faster pace."
The engagement is progressing as we expect. And as Charlie mentioned, moving forward through the more advanced phases of completing their kind of implementation plans and detailed testing and the typical engineering process we would expect to see, leading to more detailed field testing on the way to ramping the significant scale.
Management expects hyperscale revenue contribution to begin in fiscal 2027, with current investments focused on scaling operations and qualifying additional suppliers.
Product Mix Shift Impacts Margins
The company's E family of products is gaining traction in competing against traditional disk storage, though this success has temporarily affected margins.
Record sales of our E family solutions, combined with higher QLC flash costs and comparatively stable hard disk solution pricing, have contributed to temporarily lower product gross margins of 62.9% in Q4.
Management expects product gross margins to improve to the mid-60s range in fiscal 2026 as QLC flash pricing moderates and the company maintains its strategy of displacing disk storage solutions.
Management says AI is driving customers to rethink their data storage architecture, particularly for real-time analysis and inference environments. Machine learning and training environments are increasingly utilizing Pure Storage's high-performance storage.
We see AI as a major prod, if you will, towards customers rethinking the architecture of their data storage into something that is much friendlier, if you will, to AI getting access to data for real-time analysis, especially in inference and reg type environments.
The company plans to announce new AI-focused capabilities at the upcoming NVIDIA GPU Technology Conference in March 2025, particularly around unstructured data management for AI workloads.
Looking Ahead
Management expressed measured optimism about fiscal 2026, projecting 11% revenue growth to over $3.5 billion. The company is investing in scaling operations for hyperscale deployments starting in fiscal 2027. Management says the company's "activity in AI continues to grow" on multiple fronts as customers seek high-performance storage as they build out AI infrastructure.
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David Kretzmann has positions in Nvidia and Pure Storage. The Motley Fool has positions in and recommends Nvidia and Pure Storage. The Motley Fool has a disclosure policy.
