Nutanix (NTNX) Valuation in Focus After Downgrade and Rising Competition from Red Hat

Northland Securities downgraded Nutanix (NTNX) from Outperform to Market Perform, citing mounting competition from Red Hat as it seeks to attract VMWare clients. This shift is raising questions about Nutanix's ability to benefit from ongoing migration trends.

See our latest analysis for Nutanix.

Nutanix shares have retreated sharply in the past month, with a 13.7% drop in the 30-day share price return as investors digest both the Red Hat news and concerns about long-term growth opportunities. Despite this pullback, Nutanix maintains an impressive long-term track record. The company has posted a 159% total shareholder return over three years, suggesting that while short-term momentum is fading, the company’s transformation story is still unfolding.

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With shares trading at a noticeable discount to analyst targets and expectations of steady revenue growth, investors are left to wonder if this recent selloff presents a true buying opportunity or if all future upside is already factored into Nutanix’s price.

Most Popular Narrative: 21.5% Undervalued

Nutanix's most popular narrative suggests there could be substantial room for upside, with the consensus fair value sitting much higher than the current share price. The story pivots on the company's expanding role in enterprise cloud transformation and accelerating integrations with major cloud leaders.

Accelerating adoption of hybrid and multi-cloud architectures, highlighted by new integrations with Google Cloud and deepening partnerships with AWS, Azure, Dell, and Pure Storage, positions Nutanix to capture a broader share of enterprise infrastructure modernization budgets. This expands its addressable market and drives sustained revenue growth. Ongoing enterprise digital transformation and demand for scalable solutions, as evidenced by large multi-year deals, major wins like Finanz Informatik, and increasing contributions from Global 2000 customers, provide a robust pipeline for future "land and expand" motions. This improves both revenue visibility and opportunities for net new ARR expansion.

Read the complete narrative.

Curious what assumptions unlock so much potential value here? This narrative leans on bold forecasts, including ambitious improvements in key financial metrics and growth benchmarks rarely seen outside the tech elite. Find out what's really driving these numbers.

Result: Fair Value of $87.03 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent competition from public cloud giants and customer concentration risks could quickly undermine Nutanix's bullish long-term forecasts.

Find out about the key risks to this Nutanix narrative.

Another View: Multiples Suggest Valuation Risk

Although analysts see Nutanix as undervalued based on their fair value estimate, market multiples paint a different story. Shares trade at a price-to-earnings ratio of 97.5x, far higher than the US Software industry average of 34.8x and the calculated fair ratio of 52.1x. Such a premium signals that plenty of future growth is already priced in, leaving limited room for disappointment or surprise. Which method will prove more accurate if the outlook shifts?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Nutanix Narrative

If you want to test these ideas for yourself or dig deeper into the numbers, you can easily build your own Nutanix thesis in just a few minutes. Do it your way

A great starting point for your Nutanix research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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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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