As IT-Infrastructure Turns Software-Centric, Nutanix Is Most Obvious Beneficiary

Inspired by Nutanix Inc NTNX’s leadership in the market of hyperconverged infrastructure (HCI), Baird maintained an Outperform rating on the stock with a price target of $37. In a note, the firm suggested Nutanix was the “most obvious beneficiary in the industry-wide shift to software-centric infrastructure.”

Nutanix controls about 25 to 30 percent of the market and ranks above rivals EMC VxRail, Cisco Systems, Inc. CSCO and SimpliVity. Its success has been in part driven by platform updates, including a free, next-generation hypervisor and competitive management software.

“The company’s long-term opportunity is to act as a private/public cloud platform with subscription services that could include data management, analytics and security,” Baird wrote.

The firm also noted its confidence in Nutanix’s partnerships with Dell and Lenovo Group Limited (ADR) LNVGY — each of which provide software-only revenue. This represents a mid-teens percent of Nutanix’s bookings, but Baird anticipates the figure to increase.

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“We recognize this creates some uncertainty in the long-term operating model but we like that the company has the ability to adjust in a rapidly changing industry,” analysts wrote.

How The Industry Looks

The firm’s general outlook on HCI is favorable, as the category ranked second for C17 growth just behind Network Security.

Still, not all industry players are poised to thrive amid market changes. Cisco is rapidly falling behind competitors in its offerings, and hyperconverged vendor SimpliVity is awaiting a buyout by Hewlett Packard Enterprise Co HPE.

“Ultimately, we believe every server and storage incumbent needs to address this market organically, through partnership, or M&A,” Baird wrote.

The Nutanix Case

But analysts have confidence in Nutanix.

The firm’s reiterated rating aligns with a consensus estimate for second-quarter revenue and gross margin, which lie at $178 million and 60.2 percent, respectively. Comparatively, guidance was set between $175 million and $180 million for revenue and at 60 percent for gross margin.

Risks to the thesis are competition — particularly from VMware, Inc. VMW and EMC, maintenance of OEM relationships, accrual of net losses consistent with historical reports, rapid technological changes and macroeconomic shifts.