Ok it has been a while since I engaged in banging the table on this one and I remember the back and forth with folks here vividly with comparison to SMCI and Micron…
In any case, I have continued to hold this stock to the present day as you would see in my portfolio write ups and with the latest results and as promised in my August portfolio review, I feel this holding deserves a call out, especially given how much preoccupation there has been over spotting the next Nvidia or Micron inflection moment that is possibly staring at us in plain sight.
First by way of a re-introduction, Pure Storage (PSTG) rebadged itself Everpure (P) a year or so back but for all intents and purposes it is the same company it ever was.
Ok so why am I drawing attention to this holding now? Well - a number of reasons which I will outline as well as trying to fill in the gaps since it was last covered.
But first a refresher…
Everpure is a data management and data storage company that relies on pure all flash array memory that is software controlled and increasingly available and delivered through long term evergreen contracts on a storage as a service subsctription basis.
They compete versus legacy hard disk vendors as well as other AFA players (Dell, HP, NetApp) and they partner with Nvidia and Kioxia at the back end as well as IaaS/PaaS cloud operators, Virtualisation players and data cloud specialists at the front end.
They typically have grown faster than the competition by 5-10% points each year, gaining market share in the process and usually are ahead of the competition in terms of solution performance as well as business model innovation. Their DirectFlash software defined architecture is their differentiator vs the competition’s SSD solutions.
In terms of the share price - it is up 38% YTD, up 256% over 5 years and 663% over 10 years.
For another take on Everpure, here is Bert’s latest review on SeekingAlpha for those with access…
https://seekingalpha.com/article/4856018-pure-storage-the-outlook-is-pure-the-valuation-far-less-so
Recent track record and points to note..
- Since Oct 2021 they have beaten on revenues and EPS every quarter except 1
- They have had revenue growth re-acceleration every quarter since Oct 2024
- Their margins are elite - on a par with typical software levels
- The latest quarter revenue growth reached 37.73% YoY and beat on the top line by 8% and 20% on the bottom line and their RPO growth was 44% and they are guiding revenue growth in the next Q and the full year to be 37-38% which can only assume continued acceleration from here (they already upped the FY guide by $500m this quarter)
- This actual revenue growth is being achieved all whilst TCV for their long term storage as a service contracts on a recurring basis is exploding (121% growth)
- The market cap is still only $30bn and at a P/E of 33 trades at less than 1 PEG.
Ok so what is the Nvidia/Micron inflection moment. Well apart from their ongoing re-acceleration story, new product introductions with class leading performance and an almost perfectly handled pricing and supply chain management, there is a break through that is staring at us in plain sight that from next quarter starts to feed into the numbers.
This is something we have known about for a while but required patience for the business model to be proven and for the commercial impact to be realised and that is their break through contract with a top 5 hyperscaler for large volume AFA memory storage across mass deployment on a licensing revenue model basis. Previously hyperscalers relied on HDD mostly or AFA for limited high performance use cases. This hyperscaler was always assumed to be Meta and the scale up and revenue recognition ramp starts in the coming quarter onwards and has hardly had a chance to contribute to the reaccelerating story to date.
In the last month, news broke that a second hyperscaler has now agreed licensing terms and contracted for a similar arrangement, (Everpure has always stated that they are being evaluated by at least 4 of the top 5). This was always hoped for and expected but a welcome contract breakthrough nonetheless. The commercial revenue ramp from this will start to feed in from next year so nicely layering on top of the first.
So effectively we have a 38% revenue growth company still accelerating and about to be compounded by a first and then a second hyperscaler mass volume licensing contract with potentially more to follow.
At the same time Everpure are relatively immune from the cyclical risk of memory chip suppliers, if prices go up so do their revenues in the short term but if prices drop back then the elasticity of demand kicks in as it becomes more and more economically viable to replace HDD and SDD with Everpure DirectFlash solutions and volumes explode.
For anyone wanting to check out the earnings release and associated presentations, they are available here…
Ok so how am I playing this? I have to admit I top sliced at $111 after the major pop surrounding the second hyperscaler announcement prior to earnings, but when I read the earnings report and saw the upcoming inflection point and thought about this more I bought back in at $92. If I had spare cash (If such a thing exists), then I would consider adding more.
Cheers
Ant