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- This AI Storage Darling Just Hit A Snag, But The Setup For A Bounce Is Getting Interesting
This AI Storage Darling Just Hit A Snag, But The Setup For A Bounce Is Getting Interesting
Noah Zelvis
December 21, 2025
This company is learning the hard lesson of the AI infrastructure trade.
The market loves growth stories, right up until it starts asking what that growth costs and when it turns into real operating leverage.
After a brutal post-earnings air pocket, the stock is now sitting at a spot where expectations are lower, positioning is cleaner, and a technical support zone is getting a lot of attention.
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What Just Happened
Pure Storage (NYSE: PSTG) ripped into early November, then got clipped hard after earnings. The company delivered a quarter that was fine on the headline numbers, but the stock reacted like it heard the word spending and stopped listening.
On Dec. 3, shares sank more than 20% after the Q3 report, despite results that met or slightly beat expectations. The market focused on two forward-looking friction points. First, gross margin uncertainty tied to hyperscaler opportunities. Second, heavier investment intensity heading into fiscal 2027, which raises the fear that revenue growth shows up before profits do.
Now PSTG is trading well below its early-November peak, and the conversation has shifted from AI winner to AI winner that might have to pay admission.
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The Strategy In Plain English
Pure sells high-performance, all-flash storage and software that helps enterprises and cloud players store and move data fast. In the AI era, that matters because GPUs are picky eaters. If the storage layer is slow, the expensive compute sits idle, and nobody wants to explain that bill.
The bullish pitch is straightforward. More AI workloads means more data, more performance requirements, and more storage architecture upgrades. Pure wants to be the premium option that wins share as customers modernize, while its subscription and services model keeps revenue more recurring over time.
The extra spice is hyperscalers. Deals like Meta’s involvement validate the tech and can drive big volume. The catch is that hyperscalers can also change the economics, pressuring margins and forcing the company to invest more up front to win and support those deployments.
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Why The Stock Just Fell Out Of Bed
This was not a demand collapsed kind of sell-off. The market is repricing the profit timeline kind of sell-off.
The quarter was good, but not good enough for the prior price
Pure posted adjusted EPS of $0.58 on revenue of $964.5M. Sales beat consensus by a hair, but not by enough to justify priced for perfection vibes.
Margin math got louder than revenue math
Multiple analysts pointed to uncertainty around gross margins as Pure leans harder into hyperscaler engagements and potentially different revenue models. Investors hate ambiguity when a stock is trading like a growth athlete.
Fiscal 2027 became the new battleground
The market quickly started modeling what higher spend and mix shifts could mean for earnings flow through in fiscal 2027. When that debate takes over, near-term beats do not buy much goodwill.
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The Good Stuff You Can Actually Point To
Solid growth and execution in the quarter
Revenue grew double-digits year over year, and the company came in around expectations on profitability, which matters because this was not a miss-and-guide-down event.
Hyperscaler traction is real, even if the Street is arguing about the economics
Meta is a real reference point, and management commentary has kept investors focused on expanding hyperscaler engagements. That is why the upside case is still on the table.
The sell-off reset the story from momentum to process
After a drawdown like this, the stock no longer needs perfect news to work. It needs steady proof that growth can persist while margins do not get sacrificed permanently.
The Rub You Should Respect
This is still a pay now, maybe earn later narrative
If the company is reinvesting hyperscaler-related revenue into R&D and go-to-market, it can be strategically correct while still pressuring near-term margins. The stock will trade on confidence in that payoff.
Hyperscaler mix can be a blessing and a bargaining chip
Big customers validate product-market fit, but they also tend to demand pricing and terms that can cap margin expansion. That is why analysts keep circling fiscal 2027 profitability.
Volatility is part of the package
When a stock can drop 20% on a fine quarter, it can also rip higher on a small shift in sentiment. Position sizing matters.
What This Sets Up Over The Next 3–4 Quarters
The next phase is less about hype and more about measurable follow-through.
A constructive path looks like this:
Revenue stays firm as enterprises keep refreshing storage for AI-ready data centers.
Gross margins stabilize or at least stop surprising to the downside as hyperscaler mix grows.
Operating discipline improves so incremental revenue starts showing up more cleanly in earnings.
Management gives clearer framing on hyperscaler economics and what fiscal 2027 spend is buying.
If those boxes get checked, the December flush can start to look like a reset rather than a regime change.
What I’m Watching
Gross margin commentary each quarter, not just the print.
Hyperscaler color: more clarity on models, timing, and how repeatable the wins are.
Operating expense trajectory: are investments scaling, or creeping.
Technical behavior at support: the bounce case gets better if sellers stop being in control.
How I’d Frame A Position
This is not a set it and forget it chart right now. It is a build a thesis, then scale with proof situation.
Starter exposure only if you want AI infrastructure upside but accept drawdowns.
Add on proof if margins stabilize and management tightens the fiscal 2027 profitability narrative.
Trim into sharp rallies if the stock runs ahead of fundamentals again, because this tape has shown it will punish crowded optimism.
The Bottom Line
Pure Storage is still in the right arena. AI pushes data volumes and performance requirements higher, and storage becomes a real bottleneck when everyone is trying to feed GPU clusters at scale. The problem is that the market is no longer paying for the dream without asking for the invoice.
The December drop looks less like a business failure and more like a repricing of margin and investment uncertainty, especially around hyperscaler economics and fiscal 2027 spend. If the company can show that growth remains strong while profitability does not get permanently diluted, PSTG can earn a re-rating off a much more reasonable starting point than it had in early November.
Action Recap
✅ Starter – Consider a small position if you want AI storage exposure and can handle volatility.
✅ Add On Proof – If gross margins and spending expectations stop drifting against you.
⚠️ Trim On Trouble – If hyperscaler mix keeps pressuring margins with no clear path to operating leverage.
That's our coverage for today; thanks for reading! Reply to this email with feedback or any tech stocks you want me to check out.
Best Regards,
—Noah Zelvis
Tech Stock Insider