Pure Storage (PSTG) Q2 2026: Hyperscaler Win Sets Path to 10+ Exabyte Deployments
PSTG’s hyperscaler design win signals a step-function increase in scale, with management targeting over 10 exabytes in a single customer ramp by calendar 2026. Software-led differentiation and Evergreen subscription models are reorienting the business toward recurring revenue and higher-margin opportunities, while cloud and AI integration expand addressable market and strategic relevance. Investors should monitor execution as PSTG transitions from enterprise-centric growth to hyperscale and cloud-native opportunities, with R&D and supply chain investments rising ahead of new deployments.
Summary
- Hyperscaler Ramp: Major design win accelerates Pure’s entry into hyperscale, with 10+ exabyte deployments expected.
- Business Model Shift: Evergreen One and software licensing expand recurring revenue and increase margin durability.
- Cloud and AI Leverage: Fusion and Portworx position PSTG as a control layer for hybrid, multi-cloud, and containerized environments.
Performance Analysis
Pure Storage’s financial narrative is increasingly driven by high-margin software and services, even as hardware remains the delivery vehicle. Management emphasized that 95% of engineering is software-focused, with gross margins reflecting the value of its Purity software and as-a-service models. The company’s subscription revenue is underpinned not just by traditional support, but by offerings like Evergreen One, Cloud Block Store, and Portworx, each contributing to a growing base of recurring revenue.
Gross margin expansion in subscription services was highlighted, while product gross margins saw temporary compression due to aggressive expansion against disk-based competitors. The company’s investment in R&D is set to remain high, supporting both hyperscale deployments and ongoing innovation in control layer software. Operating margins are expected to remain flat near-term as PSTG absorbs upfront costs supporting the hyperscaler design win, but management reiterated confidence in long-term operating leverage as new revenue streams scale.
- Subscription Revenue Mix: Evergreen One, Cloud Block Store, and Portworx drive a multi-pronged subscription base, shifting revenue quality higher.
- Margin Dynamics: Software and services lift overall gross margins, but near-term product margin dips reflect tactical share gains in disk replacement.
- OPEX Investment: R&D and supply chain build-out for hyperscale ramp will weigh on margins in FY26, with expected leverage as deployments mature.
With the hyperscaler win, PSTG’s addressable market and revenue scale are set to expand materially, but execution risk rises as the company manages a more complex, global supply chain and transitions a larger share of revenue to licensing and services.
Executive Commentary
"Our vision now extends in two major directions... a major design win with a hyperscaler... allows us to start replacing the hundreds of exabytes that exist in hyperscaler storage with a flash solution that meets the TCO of cheaper disks and at the same time improves their overall price performance at roughly one-tenth the space power and cooling of hard disk storage."
Charles Giancarlo, CEO
"We saw some nice gross margin expansion in our subscription services... But after this year, we believe that we'll get back to aggressive expansion of our operating margins, similar to what we've done historically."
Kevin Preissler, CFO
Strategic Positioning
1. Hyperscale Market Penetration
PSTG’s breakthrough hyperscaler design win is transformative, with management projecting sales of over 10 exabytes to a single customer in calendar 2026. This scale dwarfs traditional enterprise deployments and creates a new bar for storage vendors. The win also accelerates conversations with other hyperscalers, potentially expanding PSTG’s footprint across the largest buyers of storage globally. The model will shift toward a software licensing structure, with hardware procured by the customer or their agents, but PSTG retaining responsibility for supply chain standards and integration.
2. Evergreen and Subscription Model Expansion
The Evergreen One offering, a storage-as-a-service model, is rapidly gaining traction. Customers contract for SLAs (service-level agreements) around performance, capacity, and reliability, while PSTG manages all hardware and software behind the scenes. This model removes hardware lifecycle complexity for customers and generates recurring, higher-margin revenue for PSTG. Hybrid models like Evergreen Flex and pure software subscriptions (Cloud Block Store, Portworx) further diversify the revenue base and align with customer cloud migration strategies.
3. Control Layer and Cloud-Native Differentiation
Fusion, control layer software, is positioned as the “vCenter of storage,” virtualizing data placement and management across on-prem, cloud, and hybrid environments. This enables policy-driven, global management of data, crucial for compliance, cybersecurity, and operational efficiency. Portworx, the container-based storage solution, extends PSTG’s relevance into Kubernetes and cloud-native workloads, providing a bridge for customers transitioning from VMware to containerized environments.
4. Power Efficiency and Data Center Economics
PSTG’s flash solutions deliver up to 90% reductions in space, power, and cooling versus hard disk storage. As data center power constraints become a gating factor for AI and cloud expansion, PSTG’s TCO (total cost of ownership) parity with disk, combined with superior efficiency, positions the company as a strategic supplier to hyperscalers and enterprises facing capacity and sustainability pressures.
5. AI and Next-Gen Workloads
While AI training workloads are not storage-intensive, management sees a coming wave of inference and retrieval-augmented generation (RAG) workloads that will drive demand for high-performance, globally accessible storage. PSTG’s integration with NVIDIA and upcoming announcements at GTC are expected to further cement its relevance in AI infrastructure, especially as traditional enterprise data becomes more central to AI-powered applications.
Key Considerations
PSTG is entering a new phase, transitioning from enterprise-focused growth to hyperscale and cloud-native opportunities. This shift brings both upside and complexity, as the company must deliver at unprecedented scale while maintaining its software-led differentiation.
Key Considerations:
- Scale Transition Risk: Moving from 4-6 exabytes sold annually to over 10 exabytes for a single hyperscaler introduces operational and supply chain challenges.
- Recurring Revenue Quality: Expansion of Evergreen One and software licensing models lifts revenue predictability and margin profile, but requires flawless service execution.
- Cloud-Native Competition: As enterprises migrate to Kubernetes and containers, PSTG’s Portworx and Fusion must maintain technical leadership against fast-moving cloud-native rivals.
- Margin Management: Near-term margin pressure from hyperscale investments must be balanced with long-term expansion as recurring revenue scales.
- Customer Diversification: Hyperscaler concentration risk grows as PSTG’s revenue mix shifts, making execution with a few large customers disproportionately impactful.
Risks
Execution risk is elevated as PSTG manages hyperscale ramp, complex supply chain coordination, and transitions to a licensing-heavy revenue mix. Competitive pressure from both legacy storage vendors and cloud-native startups remains acute, while reliance on a small number of hyperscaler customers increases revenue concentration risk. Flawless delivery and service performance are critical to sustaining margins and customer trust in this new phase.
Forward Outlook
For Q3, Pure Storage guided to:
- Flat operating margins near 17% as hyperscale investments ramp
- Continued gross margin expansion in subscription and licensing models
For full-year 2026, management maintained guidance:
- Double-digit top-line growth, driven by hyperscale and subscription ramp
Management highlighted several factors that will shape results:
- Completion of hyperscaler design cycle and start of large-scale deployments
- Acceleration of recurring revenue as more customers adopt Evergreen One and cloud-native solutions
Takeaways
PSTG’s strategic pivot toward hyperscale, cloud, and AI-driven workloads is reshaping its business model and competitive positioning. Investors should weigh the company’s software-led margin profile and recurring revenue growth against the operational risks of scaling to hyperscale deployments and maintaining pace in cloud-native innovation.
- Hyperscale Inflection: The company’s entry into 10+ exabyte deployments signals a new revenue scale but brings execution and concentration risk.
- Recurring Revenue Expansion: Evergreen One and software licensing are increasing revenue quality and margin resilience.
- Cloud-Native and AI Integration: Fusion and Portworx are key levers for maintaining relevance as enterprise IT shifts to hybrid, multi-cloud, and containerized architectures.
Conclusion
PSTG is at a strategic crossroads, leveraging software innovation and hyperscaler partnerships to expand its addressable market and recurring revenue base. Execution on hyperscale deployments and cloud-native solutions will determine whether this transition translates into durable growth and margin expansion.
Industry Read-Through
PSTG’s hyperscaler win and shift to software licensing signal a broader industry move away from hardware commoditization toward control layer and as-a-service models. Storage vendors with differentiated software and flexible deployment models are best positioned as power constraints and cloud-native adoption reshape data center economics. The emphasis on power efficiency and recurring revenue will likely accelerate across the storage and infrastructure sector, while the growing importance of data control layers mirrors trends in compute and networking. Investors should monitor which players can scale operations and sustain technical leadership as hybrid and multi-cloud architectures become the new enterprise standard.