Analyst: 4 Reasons Why Nutanix Market Trends Are Stable

A meeting between Nutanix Inc (NASDAQ: NTNX)'s management team and Oppenheimer analysts reinforced the firm's bullish stance on the stock.

Analyst Ittai Kidron maintains an Outperform on Nutanix's stock with an unchanged $34 price target and gave four reasons for the reiteration in a Friday note. 

1. Nutanix's OEM partnerships are "encouraging," especially within its AHV Hypervisor, which is seeing traction from customers who recognize its value and use case breadth, the analyst said. Xi-Cloud and CALM are on track for commercial deployments, while the company's pipeline traction with Dell and International Business Machines Corp. (NYSE: IBM) are starting to emerge, according to the Oppenheimer note. (See Kidron's track record here.) 

2. Nutanix is "examining ways to further strengthen customer value through software differentiation [and] flexibility," Kidron said. 

One potential strategy being reviewed is a software-only model which would remove the hardware contribution and generate a 25 to 30 percent hit to the top line, but create an offsetting boost to gross margins in the mid-80 percent range, the analyst said. <

3. DRAM supplies remain "tight" and support a headwind that will likely continue for the near-term, Kidron said. The company does secure DRAM availability two to three months ahead of time, although any gross margin relief is "unlikely." Sales productivity and leverage could be a source of some incremental margin gains, according to Oppenheimer. 

4. The competitive landscape remains "largely unchanged and positively biased" for Nutanix. The company's leadership position also remains "solid," but does come at a time when some of its peers are still developing a presence, Kidron said. 

"We come away comfortable that overall trends are steady and that Nutanix's pipeline continues to build on multiple fronts."

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