This AI Software Stock is Moving In on Broadcom's Territory

In the artificial intelligence (AI) software world, hyper-converged infrastructure (HCI) seamlessly integrates computing, storage, and networking. This market, crucial as businesses navigate complex hybrid and multi-cloud environments, is poised to expand at a 23.5% CAGR to $49.8 billion by 2030.

San Jose-based Nutanix, Inc. (NTNX) leads the charge, offering cutting-edge HCI solutions that help companies streamline cloud management. Nutanix is a much smaller player than AI chip giant Broadcom (AVGO) - but it moved swiftly to capitalize on customer shifts around Broadcom’s VMware acquisition, snagging market share as its superior HCI, hypervisor, and cloud storage solutions make it a strong contender against VMware. 

As evidenced by its stellar fiscal Q4 earnings report last week, Nutanix has already scored wins from the market shake-up caused by the Broadcom-VMware buy. NTNX rallied sharply after earnings, but analysts think there’s still room for this stock to run higher as it captures more market share.

About Nutanix Stock

Incorporated in 2009 and valued at $15.5 billion by market cap, Nutanix, Inc. (NTNX) is a global cloud software leader. It’s a trailblazer in HCI, delivering a slick platform that smoothly handles apps and data across clouds. Trusted globally, Nutanix powers hybrid multi-cloud environments with style and efficiency.

Shares of Nutanix have rallied 80% over the past 52 weeks, and surged 33% over the past month alone - easily overshadowing the broader S&P 500 Index’s ($SPX) gains. However, NTNX trades about 14.7% below its May highs of $73.69, which means it’s still possible to buy this stock on the dip. 

Nutanix Gaps Higher on Fiscal Q4 Earnings Beat

Shares of Nutanix rose over 20% on Aug. 29 following the cloud software company’s stronger-than-anticipated fiscal Q4 earnings. Nutanix’s revenue rose 11% year over year to $548 million, topping projections by 2%. Its non-GAAP net income per share grew 12.5% to $0.27, also surpassing estimates.

Fueling the top line was robust growth in Nutanix’s core HCI software and the strong adoption of its new features. With Fortune 100 and Global 2000 companies increasingly embracing Nutanix’s hybrid multi-cloud solutions, the company is hitting its stride. Average contract term length edged up to 3.1 years in Q4, showing the deepening trust of its clients.

Plus, Nutanix’s Annual Contract Value (ACV) billings leaped 21% to $338 million, surpassing management’s guidance. Total billings rose 23.5% to $672.86 million, and annual recurring revenues (ARR) climbed 22% to $1.91 billion, underscoring the company's strong momentum in driving sustainable growth.

After adding 670 customers during the quarter - the most in three years - Nutanix now boasts a total of 26,530 clients, thanks to fresh partnerships and sales initiatives. Major deals with Dell Technologies (DELL), Cisco (CSCO), and Nvidia (NVDA) in fiscal 2024 further expanded the company’s reach, with the quarter's crowning achievement being a multimillion-dollar ACV deal with a North American Fortune 100 financial services giant, which replaced its existing solution with the Nutanix Cloud platform, including AHV hypervisor as well as Nutanix cloud manager.

Furthermore, Nutanix’s FCF for fiscal 2024 skyrocketed 188.7% to $597.7 million, while its cash reserves grew to $655.3 million as of July 31, solidifying its financial muscle for the future.

For the first quarter of fiscal 2025, Nutanix is projecting revenues between $565 million and $575 million, with a non-GAAP operating margin of 14.5% to 15.5%. Over the longer term, fiscal 2025 revenue is estimated to be between $2.435 billion and $2.465 billion, reflecting a solid 14% growth at the midpoint. FCF is anticipated to be between $540 million and $600 million, with a healthy margin of 23%. Non-GAAP operating margin is projected between 15.5% and 17%.

Analysts tracking Nutanix predict the company will report a GAAP profit of $0.27 per share in fiscal 2025, up sharply from $0.01 in fiscal 2024.

What Do Analysts Expect for Nutanix Stock?

The software company’s quarterly performance highlighted its ability to capitalize on VMware's acquisition by Broadcom.

Earlier this year, Broadcom’s $69 billion buyout of VMware caused some uncertainty among VMware’s clientele. That caused big names at the top of the pyramid to re-evaluate their tech strategies, making them prime targets for Nutanix. With VMware’s cloud plans under a cloud of uncertainty, Nutanix stepped in to fill the void as part of what CEO Rajiv Ramaswami described on the Q4 conference call as a “multiyear opportunity to gain share.”

Piper Sandler is all in, rating Nutanix as “Overweight” and raising the price target to $77 from $76. "Management still sees strong renewal activity going on, in addition to the various new business opportunities in-front of Nutanix, particularly around the partnerships, Cisco (CSCO) and Dell (DELL), and VMware replacements," wrote analysts James Fish and Quinton Gabrielli, who named Nutanix a “top pick.”

Conversely, Morgan Stanley is more cautious. Analysts Meta Marshall and Mary Lenox nudged their price target to $71 from $62, noting the potential for a “more attractive VMware share gain opportunity," but they backed an “Equal-weight” rating on the stock, explaining that “our hesitancy has been on timing of that opportunity along with valuation.”

Overall, NTNX has a consensus rating of “Moderate Buy.” Out of 14 analysts in coverage, eight rate the AI software stock as a “Strong Buy,” three advise a “Moderate Buy,” and three recommend a “Hold.”

The mean price target for NTNX of $74.69 implies a potential upside of about 18.8% from current levels. The Street-high estimate of $85 suggests the stock could rally as much as 35.3%.