Who's Afraid Of The Big Bad Amazon? VMware Upgraded

Deutsche Bank upgraded shares of VMware, Inc. VMW amid growing evidence that large enterprises are embracing a hybrid model. This, according to the firm, materially lowers the out-year risk profile of shares.

The firm also said its worries over the last two years about VMware's on-premise core server business, given its maturity and the threat from Amazon.com, Inc. AMZN's AWS/Cloud adoption is now allayed.

Deutsche Bank upgraded its rating on the shares of VMWare from Hold to Buy, with the price target upped from $110 to $120.

In pre-market trading, shares of VMware were adding 2.28 percent to $99.22.

Analyst Karl Keirstead noted that the company pre-announced fiscal year second-quarter results last week. Based on the pre-announcement, the analyst believes the company's fiscal year 2018 and 2019 numbers are likely to move higher.

Deutsche Bank sees large enterprises are migrating IT workloads to the public cloud model at a slower-than-expected pace. Instead, the firm said they are opting to modernize their on-premise IT infrastructures.

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The firm feels this would boost VMWare's license sales and lower the tail risk, with the phenomena also helping companies such as Red Hat Inc RHT, Microsoft Corporation MSFT, Oracle Corporation ORCL and other on-premise infrastructure peers.

"Our recent checks agree that VMware technology is proving to be more durable than they would have thought 12-18 months ago," the firm said (see his track record here).

"Our checks also highlighted surprising strength in the vSAN business and lower employee turnover so far in 2017."

Delving on the pending VMware Cloud on AWS service ahead of the annual VMworld conference in Las Vegas next week, the firm said it believes it is a win-win scenario for both parties. The firm said it doesn't see any signs of material enterprise interest and worry that the rollout is delayed.

At the same time, the firm said it is intrigued with the idea that an eventual "phase two" of the partnership might be the other way around, an AWS on-premise solution that could extend the VMware partnership.

Concluding, the firm said VMWare's shares look relatively cheap for a company posting 10-percent license revenue growth and with a new cloud story to tell.

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Image Credit: By Raysonho @ Open Grid Scheduler / Grid Engine (Own work) [CC0], via Wikimedia Commons