Mohan maintains a Buy rating on Nutanix's stock with a price target boosted from $30 to $35 as the company remains in "hyper growth mode." Specifically, after a 63-percent revenue growth rate in fiscal 2017 there is still room for the company to grow 35 percent next year with no incremental investments. Gross profit dollar growth is also projected to be above 40 percent over the next two years.
Nutanix's executives explained that the legacy 3-tier infrastructure represents a $100 billion total addressable market, the analyst noted. The company expects to move to a Hybrid cloud model and gain share in the space given its three key areas of differentiation, including simplicity, scalability and choice.
"Williams noted that the hardware on the HyperConverged appliance (i.e. servers) was commoditized a while ago, and was followed by a commoditization of the Hypervisor itself," Mohan wrote (see his track record here). "The real value-add for Nutanix is in the software and up the stack. The company is nipping at the software-defined-networking capabilities of NSX (VMware's SDN), and is adding features like micro-segmentation within network security. The ultimate goal remains to provide a cloud Operating System that can manage workloads by their characteristics and move them to the most efficient destination."
Finally, Nutanix's investors will likely rerate the stock's multiple higher as the company is viewed more of a software asset company as opposed to a hardware company.
At time of publication, shares of Nutanix were up 4.04 percent at $22.43.
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