Pure Storage (NYSE:PSTG) saw its stock decline 3% Thursday morning after hedge fund Kerrisdale Capital disclosed a short position in the enterprise storage company.
Kerrisdale published a detailed report questioning Pure Storage’s $27 billion market valuation and expressing doubts about its growth prospects. The fund argued that the company is losing competitive differentiation and that its product portfolio is poorly positioned to capitalize on cloud and AI infrastructure spending.
The report specifically challenged Pure’s claims about its quad-level cell (QLC) flash-based products, suggesting they are unlikely to replace hard disk drives (HDDs) in hyperscale environments. Kerrisdale’s total cost of ownership analysis concluded that HDDs still hold a “5-6x TCO advantage versus flash-based solutions.”
The hedge fund also cast doubt on Pure’s recent software licensing agreement with Meta, stating that the features offered are “narrow and replicable” and predicting that Meta will not purchase Pure’s hardware products.
Regarding the enterprise storage market, Kerrisdale described competition as “knife fights in phone booths,” highlighting limited opportunities for meaningful market share gains against rivals such as Dell, Hewlett Packard Enterprise, and NetApp.
Kerrisdale further criticized Pure’s software business, noting that it largely consists of maintenance, support, and pre-purchased upgrade revenue, which the fund believes does not justify the SaaS-style valuation multiples assigned by bullish investors.
Despite Thursday’s drop, Pure Storage shares have gained roughly 25% year-to-date.
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