Pure Storage's stock price surges 23% after announcing a major contract with a large tech corporation.

After announcing a contract with a top four AI hyperscaler and releasing its fiscal third-quarter results, shares rallied.

The shares were last up 23% in premarket trading.

Pure Storage exceeded Wall Street's expectations and provided optimistic guidance for the fourth quarter, while also raising its full-year outlook.

"On Tuesday, CEO Charles Giancarlo of the company told CNBC's "Closing Bell: Overtime" that they are very pleased with the decision to use their system vendor for standard customer-facing storage. The solution they are providing is both cost-effective and high-performing, capable of replacing 90% of their storage."

Pure Storage did not reveal the name of the contracted hyperscaler company, but Wall Street analysts viewed the news as a significant victory that contributed to the post-earnings pop. A hyperscaler refers to the major cloud computing companies with massive data centers that can quickly scale up to meet changing storage and demand. Some of the key players with significant cloud units include Amazon Web Services, Microsoft Azure, Google Cloud, and IBM Cloud.

Piper Sandler upgraded shares to an overweight rating after the results. Investors are looking for alternative ways to play artificial intelligence trends, and companies are searching for new methods to manage AI's data-heavy needs.

Analyst James Fish stated that the contract presents a "pure opportunity ahead" and eliminates the "coinflip risk" previously priced into the stock. The addition of agreements with more hyperscalers represents an additional potential upside catalyst for the stock, he wrote, setting a $76 price target.

Hyperscaler interest in flash drives creates a secular tailwind for the space, as these vendors have historically represented 60-70% of hard disk drive shipments," wrote James Fish. "AI enhances the utilization of the storage operating system.

The company's bullish outlook on the stock is shared by Fish and Wedbush Securities analyst Matt Bryson, who called the news a "margin accretive" win and raised his price target to $75.

He wrote that there is no reason to change our positive outlook on PSTG due to the potential for increased revenue and our conviction that PSTG provides a better enterprise storage solution.