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If the side wall starts to bulge out as if a golf ball was sticking out of it I would definitely replace it. If there is no bulge appearing from the damage you should be ok.
Thats a good point, it should buldge out a bit before it just exploded.
I have similar damage on one of my newer tires and concluded it was ok, tire pressure of course should not be a concern. Bigger concern was blowing randomly. But i think it should buldge out a bit 1st if that was a concern.