On Wednesday, BofA Securities updated its outlook on Pure Storage (NYSE:PSTG), increasing the stock price target to $57 from $50, while maintaining a Neutral rating on the shares. The firm's analysis suggests that Pure Storage, known for its high-performance storage systems, is well-positioned to capitalize on the growing demand for Artificial Intelligence (AI) capabilities.
The analyst at BofA Securities highlighted that current data storage solutions present two major obstacles for AI deployment. Firstly, many storage arrays are optimized only for their primary tasks, offering insufficient performance for additional AI processes.
Secondly, traditional storage arrays typically lack networking capabilities, restricting AI applications to the primary compute stack they are directly provisioned on. Pure Storage's E//Family, however, is designed to overcome these challenges by providing flash storage reliability and efficiency at costs on par with conventional hard disk systems, while also ensuring extra performance capacity for AI tasks.
Moreover, the energy requirements of AI are becoming a concern as they begin to exceed the power availability in data centers. Pure Storage's flash solutions are reported to potentially reduce power consumption, physical space, and electronic waste in data centers by approximately 20%, according to company management.
The analyst reiterated a Neutral stance on the stock, citing a balanced risk/reward profile. The improved price objective reflects an increase in the expected enterprise value to sales multiple for the calendar year 2025, from 4x to 5x, due to anticipated stronger revenue growth and profitability.
The adjustment is based on the premise that AI-related revenue could lead to a higher mix and improved margins for Pure Storage.
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