TipRanks Smart Growth Newsletter #10: Clouds of Opportunity
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Dear Investors,
Welcome to the tenth edition of our brand new TipRanks Smart Growth Newsletter.
Through the Smart Growth Newsletter, we aim to provide you with high-potential investment insights to support your growth strategy. Each week, our analysts will identify cutting-edge companies positioned to capture market share and deliver exceptional growth, giving you unique insights for a dynamic investing landscape.
Stocks we recommend have been carefully analyzed and vetted using TipRanks data, ensuring you receive well-researched, high-potential opportunities aimed at delivering substantial, long-term growth. We will present you with a comprehensive analysis that outlines our selection process, giving you clear insights into why each stock stands out as a top growth opportunity.
With that in mind, let’s dive into this week’s top pick and explore why it could be a valuable addition to your Growth portfolio.
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This Week’s Top Growth Pick: Nutanix, Inc. (NTNX)
Nutanix, Inc. is a leading provider of hybrid multicloud infrastructure solutions, specializing in hyper-converged infrastructure (HCI) software. The company’s platform integrates compute, storage, and networking with advanced management capabilities to deliver seamless, scalable, and secure IT operations. Nutanix empowers enterprises to modernize their data centers, streamline operations, and embrace hybrid and multicloud strategies. Its software-defined solutions support diverse workloads, including virtualization, databases, and cloud-native applications, enabling organizations to drive digital transformation and optimize IT costs. Serving a global customer base, Nutanix addresses the growing demand for flexible, efficient, and integrated technology infrastructure in an evolving enterprise landscape.
Source: Nutanix, Inc.
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Here’s Why NTNX’s Stock Is Likely to Grow:
❖ Leadership in a High-Growth Market: Nutanix is a dominant player in the rapidly expanding HCI market, expected to sustain strong growth as enterprises modernize IT infrastructure and adopt hybrid multicloud solutions.
❖ Technological Innovation: Cutting-edge offerings like “GPT-in-a-box” and Nutanix Enterprise AI position the company as a leader in generative AI infrastructure, unlocking premium revenue opportunities and enhancing profitability.
❖ Strategic Partnerships: Collaborations with industry giants such as Cisco, Dell, and major cloud providers bolster Nutanix’s market presence and create additional growth channels.
❖ Recurring Revenue Strength: Nutanix’s SaaS model ensures a stable and predictable income stream, with exceptional client retention and consistent growth in annual recurring revenue (ARR).
❖ Financial Momentum: Improving gross margins, strong free cash flow, and consistently exceeding earnings expectations demonstrate Nutanix’s progress toward sustained profitability.
❖ Analyst Support and Valuation Potential: Positive analyst sentiment, price target upgrades, and projections of undervaluation by future cash flows reflect significant upside potential for long-term investors.
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Climbing the Cloud Ladder
Headquartered in San Jose, California, Nutanix, Inc. was founded in 2009 with a vision to simplify enterprise IT infrastructure through software-defined solutions. The company’s focus on transforming traditional data centers into agile, cloud-like environments positioned it as a pioneer in hyper-converged infrastructure (HCI).
Nutanix has achieved significant growth milestones through strategic investments and collaborations. In its early years, the company raised over $300 million in venture capital funding to accelerate product development and market expansion. Its successful IPO in 2016 provided additional resources to fuel innovation and expand its global reach.
The company has strategically leveraged acquisitions to enhance its capabilities. In 2018, it acquired Frame, a desktop-as-a-service platform, to strengthen its virtual desktop infrastructure (VDI) offerings. That same year, it acquired Minjar, whose Botmetric platform improved cloud cost management and governance. These acquisitions, along with select technology integrations from companies like Mainframe2, bolstered Nutanix’s ability to support hybrid multicloud environments and deliver cost-effective, innovative solutions to a growing customer base.
Geographical expansion has also played a critical role in Nutanix’s growth. The company has established operations in key markets worldwide, enabling it to serve a diverse range of industries. Strategic alliances with industry leaders including Lenovo, Hewlett Packard Enterprise (HPE), and Dell Technologies have enhanced its market presence and distribution capabilities. Partnerships with major cloud providers, such as AWS, Microsoft Azure, and Google Cloud, further solidified Nutanix’s role in hybrid multicloud strategies.
These efforts have cemented Nutanix as a leader in the enterprise IT and hybrid cloud space. This leadership was further validated in 2024, when Nutanix was recognized as a Leader in the Gartner Magic Quadrant for Distributed Hybrid Infrastructure, alongside industry giants such as Microsoft, Amazon, Broadcom’s VMware, and Oracle.
Nutanix and VMware currently dominate the HCI market, each holding approximately 35% of the total market share. While larger competitors like Dell, HPE, Cisco, Microsoft, IBM, and Oracle offer competing solutions, many of them also partner with Nutanix by pre-installing the Nutanix Cloud Platform (NCP) on their hardware and cloud platforms.
Source: Gartner, Inc.
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Innovate to Dominate
Nutanix has built its reputation on technological innovation, redefining enterprise IT with a focus on simplicity, flexibility, and scalability. At the heart of its success is its industry-leading hyper-converged infrastructure (HCI) software, which integrates computing, storage, and networking into a single platform, enabling organizations to modernize their IT environments with ease.
The company has continuously evolved its platform to meet the demands of a hybrid multicloud world. Innovations such as the Nutanix Cloud Platform and AHV hypervisor empower businesses to manage workloads seamlessly across private and public clouds, providing flexibility to choose and switch between different platforms as needed. Nutanix’s pioneering efforts in software-defined storage, advanced disaster recovery solutions, and AI-driven operational insights further distinguish it from competitors.
By leveraging cutting-edge technologies like AI, Nutanix enhances its platform’s capabilities through tools such as Prism Pro, which offers predictive analytics and automated insights. These AI-driven features help businesses proactively address potential issues, optimize resource utilization, and minimize downtime. Additionally, AI is deeply embedded in disaster recovery and workload management, enabling intelligent decision-making and seamless scalability.
In November 2024, Nutanix announced a significant leap forward with Nutanix Enterprise AI, a unified generative AI platform deployable across on-premises, edge, and public clouds. This included the launch of “GPT-in-a-box,” an infrastructure solution enabling businesses to deploy generative AI workloads securely and efficiently within their environments. Early adoption of GPT-in-a-box has demonstrated strong demand for these capabilities, positioning Nutanix as a key enabler of AI infrastructure.
By entering the generative AI infrastructure market, Nutanix has unlocked new revenue streams, diversified its offerings, and strengthened its appeal to industries adopting AI-driven solutions. The premium nature of these AI solutions can drive higher-margin revenues, further bolstering Nutanix’s subscription-based model. These innovations support the company’s goal of long-term, sustainable growth while enhancing profitability.
Source: Nutanix, Inc.
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Where Cloud Meets SaaS
Nutanix operates on a subscription-based (SaaS) business model, with the majority of its revenue generated through ARR from software subscriptions. This predictable and consistent income stream accounts for over 90% of the company’s total revenue. Having transitioned from a hardware-centric approach, Nutanix now focuses exclusively on delivering software-defined solutions for hybrid multicloud environments.
This business model, rooted in recurring revenue and long-term customer relationships, ensures income stability and supports Nutanix’s SaaS-driven growth trajectory. NTNX’s market leadership makes it a go-to brand for companies seeking HCI solutions. High-quality offerings, robust support, and high switching costs contribute to a “sticky” customer base. As a result, the average customer contract length exceeds three years, with a net revenue retention rate of over 120%.
In Q1 FY2025, Nutanix reported ARR of $1.97 billion, an 18% year-over-year increase, driven by strong renewals and upselling to existing customers. The company also highlighted a 12% year-over-year growth in remaining performance obligation (RPO) to $4.2 billion, reflecting future revenue from committed contracts.
Nutanix’s focus on hybrid multicloud strategies and software innovation positions it to capitalize on a total addressable market (TAM) estimated at $60 billion, fueled by the rise of hybrid multicloud strategies and software-defined data centers. The HCI market, specifically, is expected to grow at a 24% annual rate over the next five years, as enterprises modernize their IT infrastructures and adopt HCI platforms, creating significant opportunities for market leaders like NTNX.
Further boosting its growth prospects, UBS analysis estimates Nutanix has the potential to capture $400 million in ARR from VMware’s customer base. This opportunity stems from VMware’s acquisition by Broadcom, which has created market disruption, prompting some customers to seek alternative solutions due to uncertainties and potential changes in pricing or support.
Lastly, while public cloud providers like AWS and Azure continue to capture larger shares of IT budgets, on-premise data center investments remain relevant. Nutanix specializes in hybrid and multicloud solutions, enabling enterprises to seamlessly integrate on-premise and cloud environments, effectively meeting the evolving needs of modern IT.
Source: Nutanix FQ1 2025 Earnings presentation
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The Growth Ledger
Nutanix has demonstrated impressive revenue and earnings growth over the past three years, driven by its transition to a SaaS model that has fueled consistent increases in recurring revenue. Its non-GAAP EPS has consistently improved over the past three years, reflecting enhanced operational efficiency and revenue growth. The company exceeded analyst expectations in every quarter, showcasing double- or triple-digit year-over-year gains. In FQ1, NTNX reported non-GAAP EPS of $0.42, up nearly 45% year-over-year, once again surpassing expectations.
Adjusted EBITDA further highlights Nutanix’s financial progress, increasing to $102 million in FQ1 FY2025 from $59 million a year earlier. The company also achieved a non-GAAP gross margin of 83%, driven by cost optimization and operational scaling, positioning it favorably against industry benchmarks.
Nutanix has set ambitious financial targets, including achieving 20-22% non-GAAP operating margins and $3 billion in ARR by FY2027. The first of these goals has already been achieved, with Q1 FY2025’s non-GAAP operating margin reaching 20%. Given the strong momentum in ARR growth, the company is on track to achieve its $3 billion target by mid-to-late FY2027.
Despite reporting negative shareholder equity, stemming from accumulated losses during its early growth phase, this is not a significant concern. Nutanix’s strong cash position, with $161.8 million in net cash provided by operating activities and $151.9 million in free cash flow (up 14.6% year-over-year), demonstrates its ability to meet financial obligations and invest in future growth. These metrics underscore Nutanix’s successful business model and its solid positioning for sustained, profitable expansion.
Source: Nutanix FQ1 2025 Earnings presentation
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Confidence Rebuilt, Value Unveiled
Nutanix’s stock has risen by over 18% over the past year, despite a significant decline last summer. The stock dropped after Nutanix issued slightly weaker-than-expected revenue guidance for FQ4 2024, prompting investors – wary after a strong preceding run-up – to sell off shares. However, Nutanix ultimately exceeded its own FQ4 guidance as well as analyst estimates, helping to regain investor confidence.
Although NTNX trades at a premium relative to the broader IT sector, this is typical for high-growth companies. Its valuations are considered mid-range compared to its peers. Analysts view this as justified, citing Nutanix’s dominance in the HCI market, extensive partnerships, and strong financial performance. Future cash flow projections suggest the stock is undervalued by approximately 50%, further underscoring its attractiveness for long-term investors.
Analysts at leading Wall Street firms remain optimistic. Morgan Stanley recently raised its price target for Nutanix from $78 to $85, naming it one of its “Top Picks” for 2025 within the enterprise technology sector, supported by expectations of healthier enterprise spending. Similarly, Bank of America Securities reiterated its bullish stance with the same price target, highlighting Nutanix’s partnerships with Cisco and Dell, which are expected to drive market share gains.
Nutanix is rated a “Strong Buy” by analysts, with an average price target implying an upside of over 26%. Additionally, Nutanix is among the few growth companies to achieve a “Perfect 10” Smart Score on TipRanks, reflecting strong fundamentals and market potential.
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To Sum It All Up
Nutanix is a leading provider of hybrid multicloud infrastructure solutions, recognized for its innovative hyper-converged infrastructure (HCI) software and strategic partnerships with major industry players. The company has achieved strong recurring revenue growth, driven by exceptional client retention, a subscription-based model, and a robust product portfolio catering to the evolving needs of enterprise IT. Nutanix benefits from a solid financial foundation, operational efficiency, and a leadership position in the rapidly growing HCI and hybrid cloud markets. Despite its premium valuation, the stock reflects Nutanix’s high growth potential, market leadership, and increasing profitability. With positive analyst sentiment and a strong position to capitalize on market trends, Nutanix represents a compelling growth investment opportunity.
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Click here for more stock analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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