How Nutanix’s Recent Share Drop and AI Demand Shape Its 2025 Investment Case

If you are weighing what to do with Nutanix stock right now, you are definitely not alone. Over the last few years, Nutanix has been a standout among cloud software companies, posting gains that long-term holders should be very happy about. We're talking about a stock that's up 151.8% over the past three years, and a staggering 167.2% if you zoom out to five years. Of course, things haven't been quite so rosy in the short term. Nutanix has slipped by 12.9% over the past month and is down 1% in just the last week, despite still managing a solid 10.4% gain year-to-date. Shifts in overall tech sentiment and evolving views on cloud services have shaken up investor risk perception, pushing the stock price into this recent dip.

With that in mind, you're probably wondering whether Nutanix is now undervalued, overvalued, or sitting right where it should be. Our latest valuation check assigns Nutanix a score of just 1 out of 6 for undervaluation, hinting that it's only considered undervalued by one standard method right now. But valuation is more than just a simple tally. By the end of this article, we'll dig into a smart perspective that goes beyond the usual number crunching. First, though, let's break down how these valuation methods work and see what they really say about Nutanix today.

Nutanix scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Nutanix Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a classic valuation method that estimates a company’s true worth by projecting its future cash flows and then discounting them back to today’s dollars. In simple terms, it tries to answer the question: how much are Nutanix's future cash flows worth right now, in today's money?

For Nutanix, the latest DCF analysis uses the 2 Stage Free Cash Flow to Equity approach. The company’s latest reported Free Cash Flow (FCF) stands at $739 million. Analysts anticipate that Nutanix's annual FCF will grow steadily, reaching roughly $1.36 billion in 2035, with interim projections such as $795 million in 2026 and $899 million in 2027. While only the next five years draw on analyst estimates, further cash flow growth is extrapolated based on current trends and industry expectations.

Using these projections, the DCF model suggests a fair value per share of $66.65 for Nutanix. As of now, this intrinsic value compares closely to the current market price, with an implied discount of minus 1.5 percent. In other words, the stock is trading about 1.5 percent above what the DCF says it’s worth, which puts it very close to fairly valued territory.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Nutanix.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Nutanix's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Nutanix Price vs Earnings

For profitable companies like Nutanix, the Price-to-Earnings (PE) ratio is a popular way to gauge whether a stock trades at a fair price. The PE ratio tells investors how much they are paying for each dollar of current earnings and is especially useful when the business has established profitability, as is the case here.

The appropriate or "normal" PE for a company is shaped by growth expectations and the risks facing the business. Companies with rapid growth, above-average margins, or defensible business models can often sustain higher PE ratios, while those facing market challenges or heavy competition tend to trade at lower multiples.

Nutanix's current PE stands at 96.6x, which is well above both the industry average of 34.9x and the average for its peer group, which is 52.9x. At first glance, this lofty multiple could set off alarm bells. However, raw comparisons do not tell the whole story. Some companies deserve a premium because of superior growth or unique strategic positions.

This is where Simply Wall St's proprietary "Fair Ratio" comes in. Unlike simple industry or peer benchmarks, the Fair Ratio adjusts for company-specific factors like growth prospects, profitability, risks, and overall industry context. For Nutanix, the calculated Fair Ratio is 51.9x. This suggests that, according to a more nuanced assessment, a PE of around 52x would be appropriate given the company's fundamentals.

Comparing the Fair Ratio with Nutanix's actual PE, there is a sizeable gap, with the current PE at 96.6x, nearly double the fair level. This points to the stock being overvalued on a relative basis using this metric.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Nutanix Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal story about a company, the rationale behind what you believe it is worth based on your expectations for its future revenue, earnings, and profit margins. Narratives connect a company’s real-world story to concrete financial forecasts, and then translate those forecasts into an estimated fair value, making your investment perspective clear and actionable.

On Simply Wall St's Community page, Narratives are a simple and accessible tool used by millions of investors to track and update their assumptions about companies like Nutanix. Narratives make it easy to compare your estimated fair value to the current market price, helping you quickly see when it may be time to buy or sell. Best of all, Narratives update automatically as fresh news or earnings are released, keeping your view relevant as circumstances change.

For example, some analysts believe Nutanix is worth as much as $95 per share, factoring in strategic partnerships and recurring revenue growth, while others see a fair value closer to $71 due to concerns about competition and profit margins. This is a clear illustration of how Narratives empower investors to reflect their own perspective in every decision.

Do you think there's more to the story for Nutanix? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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