Nutanix And The Upcoming Catalysts, A Software Story

Analysts at Morgan Stanley met with several members of Nutanix Inc NTNX's senior management team, which "emphasized the company's DNA in software" but failed to earn an upgrade. The firm's Katy Huberty maintains an Equal-Weight rating on Nutanix's stock with an unchanged $22 price target.

Nutanix's management explained its strategy of bringing "benefits of public cloud to on premise data centers through software innovation on commodity hardware with automation and self-healing capabilities that mirror the simplicity, scalability, and TCO of public cloud," Huberty commented in her research report.

The company is now focusing on making cloud invisible to enterprise IT after successfully making "infrastructure invisible," followed by the hypervision.

Generally speaking, many hardware companies argue that their real proprietary value is in the software, Huberty continued. However, very few companies have proven the ability to "decouple" the hardware from its software and demonstrate it can address the strong demand for its software-only solutions. But in Nutanix's case, the company's hardware-agnostic software offers "a realistic opportunity to transform to a software-only P&L in the near future."

In fact, hardware suppliers like Supermicro already offer Nutanix's appliances directly to consumers.

Yet despite this positive view, there are several factors that need to be addressed perhaps before turning bullish, the analyst suggested. For example, a sales force change, higher memory costs, heightened competition, and risk of slowing OEM growth all serve as headwinds that will likely put pressure on the stock in the near-term.

Finally, Huberty did boost her "bull case valuation" from $31 to $35 per share as the company successfully transitions to a "software focused company."

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