Kerrisdale Capital is shorting Pure Storage Inc. (NYSE:PSTG) as the firm believes the company is poorly positioned to capture any meaningful share of cloud and AI infrastructure spending.
What To Know: Kerrisdale Capital released a bearish report on Pure Storage on Thursday, calling the company “a flash in the pan.” The short seller believes the company is going to be left behind in the AI revolution.
“Since its core product has little chance of hyperscaler adoption, Pure has crafted a story suggesting its new quad-level cell (QLC) flash-based products will conquer the hard disk drive (HDD). However, little of the Pure pitch is grounded in reality, and in fact, much of what Pure spouts completely ignores the fundamentals of hyperscaler storage architectures and economics,” the short seller wrote in a report.
Benzinga has reached out to Pure Storage for comment on the Kerrisdale Capital report.
Kerrisdale Capital highlighted the company’s modest growth rate, declining competitive differentiation and weak positioning in the AI and cloud infrastructure space. The short seller noted that it believes Pure Storage’s product capabilities are “narrow and replicable.”
Despite inking a deal with Meta, Kerrisdale expressed the belief that the company’s prospects for deals with other major hyperscalers are dim. Although the company claims it offers a no-brainer product, the short seller expects Pure Storage to lose share to the growing field of ultra-high-performance data infrastructure players.
“Pure's products are undifferentiated and its market share has been stagnant for years. And if you believe enterprise workloads will continue migrating to the cloud, then Pure's core business is a melting ice cube,” Kerrisdale wrote.
The short seller believes Pure Storage shares will trend lower moving forward as the company is failing to gain share in the core enterprise storage market. Pure Storage’s software business mainly involves maintenance and support, so shares don’t deserve a Saas multiple, Kerrisdale said.
Pure Storage is currently trading at approximately 41.3 times forward earnings, according to data from Benzinga Pro. The stock has gained about 24% year-to-date and is up 62% over the past year.
“The purest thing about PSTG shares is pure downside,” the short seller wrote.
PSTG Price Action: Pure Storage shares were down 2.08% at $76.27 at the time of publication on Thursday, according to Benzinga Pro.
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