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Pure Storage Delivers Q3 Growth as Enterprise Data Cloud Story Gains Momentum
Raised FY26 guidance, expanding margins, and a clarifying market response put the focus on subscription mix and long-term AI investments.
12/04/2025
Key Highlights:
- Q3 FY2026 revenue reached US$964.5 million, up 16 percent year over year, with subscription services revenue of US$429.7 million growing 14 percent year over year.
- Subscription ARR rose to US$1.8 billion (up 17 percent), while remaining performance obligations (RPO) climbed to US$2.9 billion (up 24 percent), providing strong recurring revenue visibility.
- Profitability improved with GAAP operating income of US$53.9 million, non-GAAP operating income of US$196.2 million, and a 20.3 percent non-GAAP operating margin, up from 15.1 percent in Q2 FY2026.
- Management raised FY2026 guidance, increasing the revenue outlook to US$3.63–3.64 billion and non-GAAP operating income to US$629–639 million from prior ranges of US$3.60–3.63 billion and US$605–625 million.
The News
Pure Storage Q3 FY2026 revenue of US$964.5 million was up 16 percent year over year, with subscription services revenue of US$429.7 million growing 14 percent. Margins strengthened, with GAAP gross margin at 72.3 percent and non-GAAP gross margin at 74.1 percent, while non-GAAP operating margin reached 20.3 percent.
The company generated US$116.0 million in operating cash flow and US$52.6 million in free cash flow, ending the quarter with US$1.5 billion in cash, cash equivalents, and marketable securities. Management raised both Q4 FY2026 and full-year FY2026 guidance for revenue and non-GAAP operating income, citing continued demand across enterprise, cloud, and AI-aligned workloads.
Full details on the quarter and guidance are available in Pure Storage’s official Q3 FY2026 earnings press release.
Analyst Take
Pure delivered a strong quarter, and in our view the results show a company entering a more predictable pattern of mid-teens growth with improving profitability. This was not a quarter designed to reset the narrative around AI or hyperscale adoption. Instead, it reinforced the core financial story while underscoring a deliberate investment agenda around Enterprise Data Cloud.
One area we are watching carefully is the subscription revenue mix, since it reflects the full business-model transition. Subscription ARR increased 17 percent year over year and RPO rose 24 percent, which are both healthy indicators of demand and visibility. At the same time, subscription services revenue grew slightly slower than total revenue. That creates an important question for the next phase of Pure’s evolution. Is this a temporary mix effect tied to product cycles and one-time deals, or does it suggest that the shift toward subscription and cloud-aligned consumption is progressing steadily but not accelerating? In our opinion, the answer will influence how investors think about operating leverage, sustainable margins, and the pace at which Pure becomes a more subscription-weighted platform company.
Management delivered record non-GAAP operating income and a 20.3 percent non-GAAP operating margin, then immediately reaffirmed its plan to make “significant incremental investments” in research and development and sales and marketing to sustain momentum beyond FY2026. That stance tells us Pure believes the AI-driven demand cycle for flash, data mobility, and cloud-integrated storage platforms is still early. The company is choosing to spend into this opportunity rather than maximizing near-term margin expansion. In our experience, infrastructure vendors that invest when they have balance-sheet capacity and operating leverage often emerge with stronger competitive positions in the next cycle.
The market’s initial reaction underscores how closely investors are parsing both metrics and messages. The headline EPS miss contributed to the subsequent drop. In our view, the fundamentals of the quarter were constructive. The more important question now is whether Pure can translate Enterprise Data Cloud, subscription momentum, and sustained reinvestment into clearly differentiated earnings power over the next several quarters.
What Was Announced
For the third quarter of fiscal 2026, ended November 2, 2025, Pure Storage reported revenue of US$964.5 million, an increase of 16 percent year over year. Subscription services revenue grew to US$429.7 million, up 14 percent, reinforcing the company’s shift toward recurring and consumption-based models.
The company continued to grow its recurring base. Subscription ARR reached US$1.8 billion, up 17 percent, and RPO rose to US$2.9 billion, up 24 percent, providing multi-quarter visibility into future revenue.
Profitability metrics strengthened. GAAP gross margin was 72.3 percent, and non-GAAP gross margin was 74.1 percent. GAAP operating income was US$53.9 million, while non-GAAP operating income reached US$196.2 million, resulting in a 5.6 percent GAAP operating margin and a 20.3 percent non-GAAP operating margin, up from 15.1 percent in Q2 FY2026.
On cash and capital allocation, Pure generated US$116.0 million in operating cash flow and US$52.6 million in free cash flow in the quarter. The company ended Q3 with US$1.5 billion in cash, cash equivalents, and marketable securities, and returned approximately US$53 million to stockholders through the repurchase of 0.6 million shares.
Guidance increased across periods. For Q4 FY2026, Pure now expects revenue of US$1.02–1.04 billion and non-GAAP operating income of US$220–230 million, reflecting 16.5–17.6 percent year-over-year revenue growth. For FY2026, revenue guidance moved up to US$3.63–3.64 billion (up 14.5–14.9 percent), from US$3.60–3.63 billion, and non-GAAP operating income guidance increased to US$629–639 million (up 12.4–14.2 percent), from US$605–625 million.
Strategically, Pure framed the results around continued progress in its Enterprise Data Cloud agenda, including:
- Expansion into Microsoft Azure through Pure Storage Cloud Azure Native, a jointly developed, fully managed enterprise block-volume service.
- Continued evolution of the FlashArray R5 family, including FlashArray//XL190 R5, FlashArray//X R5, and FlashArray//C R5.
- Advancements in the intelligent control plane with Pure1 AI Copilot, including Portworx Pure1 AI Copilot and integration with Model Context Protocol (MCP), plus integration between Portworx and Pure Fusion.
- Cybersecurity and resilience updates such as Pure Protect Recovery Zones, cyber recovery delivered as a service with Veeam, and integrated detection capabilities with CrowdStrike Falcon and Superna.
Looking Ahead
We expect the next few quarters to provide clearer answers to two questions that will shape how the market values Pure’s position in AI-era storage and data platforms.
First, we will watch how the subscription mix evolves, particularly as Enterprise Data Cloud, Evergreen//One, and Azure Native offerings scale. If subscription services revenue begins to grow materially faster than total revenue, it will indicate that Pure’s platform shift is accelerating and may unlock additional operating margin leverage over time. If the growth rates remain close, the company may need to provide more clarity on how subscription adoption and consumption models intersect with large one-time product deals and hyperscale opportunities. In our view, customers adopting cloud-native and AI-aligned capabilities at scale should increasingly show up in the subscription lines.
Second, we will track the balance between reinvestment and margin expansion. With a 20.3 percent non-GAAP operating margin and strong gross margins, Pure has demonstrated visible operating leverage. Management is choosing to continue investing in platform innovation, AI-driven capabilities such as Pure1 AI Copilot, and expanded cloud integration rather than prioritizing maximum short-term margin. Our opinion is that disciplined reinvestment at this stage is more likely to strengthen Pure’s competitive position in AI and data-centric infrastructure. The impact of that approach will be visible in how operating income and free cash flow track against the updated FY2026 guidance.
If Pure can make consistent progress on these fronts, its Enterprise Data Cloud strategy will gain definition and investor confidence should deepen. The company has a meaningful role to play in the AI infrastructure cycle. The opportunity now is to translate that role into sustained earnings power and a clearer platform identity that differentiates Pure from both legacy storage architectures and newer AI-focused competitors.
Don Gentile | Analyst-in-Residence -- Storage & Data Resiliency
Don Gentile brings three decades of experience turning complex enterprise technologies into clear, differentiated narratives that drive competitive relevance and market leadership. He has helped shape iconic infrastructure platforms including IBM z16 and z17 mainframes, HPE ProLiant servers, and HPE GreenLake — guiding strategies that connect technology innovation with customer needs and fast-moving market dynamics.
His current focus spans flash storage, storage area networking, hyperconverged infrastructure (HCI), software-defined storage (SDS), hybrid cloud storage, Ceph/open source, cyber resiliency, and emerging models for integrating AI workloads across storage and compute. By applying deep knowledge of infrastructure technologies with proven skills in positioning, content strategy, and thought leadership, Don helps vendors sharpen their story, differentiate their offerings, and achieve stronger competitive standing across business, media, and technical audiences.