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Following eight straight red trading sessions, Pure Storage (PSTG +2%) is looking to snap its bearish streak today after announcing an expansion of its AI portfolio. The company launched a full AI stack (includes all components needed to operate applications) offering on its platform, Pure Storage GenAI Pod, which helps remove some of the complexity from AI deployment. The GenAI Pod is aimed at the NIM, or microservices, space, allowing companies to achieve scaling advantages by breaking giant code bases into smaller service-specific applications. Microservices are used extensively by companies across multiple verticals, from Amazon to Netflix.

• What does Pure Storage do? Flash data storage is its bread and butter. PSTG is confident that, given the power and performance needed by AI, flash will eventually replace traditional disk drives. Last year, CEO Charles Giancarlo predicted that disk-based systems would cease being a strong part of the data storage market in around five years. This was a bold prediction, given that around 90% of hyperscalers, i.e., Google, Amazon, etc., leverage hard disks. However, this also illustrates how lucrative disrupting this market would be for PSTG.
• Enterprises currently lean on flash for their high-performance environments but remain loyal to hard drives for other storage needs. This is mainly because of price, which remains the primary hindrance to wider flash adoption. Still, flash continues to see improvements in pricing and capabilities. Also, even if the price always stays higher, the total cost of ownership, when incorporating performance gains, could undercut hard drives.
• What makes the GenAI Pod important? PSTG noted in September that while traditional AI is relatively mature and continues to sell in that environment, the NIM space is still to be developed. The company is working on vertical use cases with NVIDIA within the NIM field and is looking to capitalize on the smaller end of AI scaling. PSTG added that many organizations will focus exclusively on small-scale AI training.

PSTG's commitment to bolstering its AI portfolio is garnering a positive response today. However, since all-time June highs, the stock has corrected by around 30%, driven by a combination of a frothy 40x forward earnings valuation, which has now slid to around 27x, and a muted macroeconomic environment. During a September conference, PSTG noted that economic conditions have not changed for better or worse since the beginning of the year, meaning it is not great but not terrible. During its Q2 earnings call in late August, PSTG began seeing greater intentions from organizations to buy. Still, PSTG has yet to see a positive inflection in the storage market.

Nevertheless, as the only company that operates direct-to-flash, making flash compete more effectively and earlier in the life cycle versus hard drives, PSTG has tremendous long-term potential if AI demand continues to swell as businesses seek technologies offering attractive price-to-performance ratios to run power and data-hungry AI workloads.