In the past 30 days, 13 analysts have increased their earnings estimates for this cloud computing company.
Nutanix, Inc. (NTNX)
From Pivotal Point
The cloud was a seismic shift for enterprise computing. The next big move, to the edge, is going to be even more important. Amazon Web Services, the leading cloud provider, is getting ready for that move. The Amazon.com (AMZN) unit announced three new edge computing products Tuesday.
And this development is going to create a new batch of winners.
Cloud computing started out as a way for enterprises, non-profits and government agencies to cut costs. Previously, companies would be responsible for buying the equipment necessary to store and protect all their data. So, it made economic sense to rent computing bandwidth and data storage in data centers, rather than building and maintaining standalone facilities.
That’s exactly what AWS offers.
A cloud services contact with AWS means the end of new equipment costs and all the man hours required for maintenance. In fact, I’ve been running my business on AWS for the past 15 years. But this system has its own shortcomings, namely latency.
Although cloud computing companies have made massive investments building new data centers and laying fiber optic cable, the physical location of the facilities still limits how fast data gets bounced around the network. As workloads have become more complex, shaving off a few milliseconds here and there is a big deal.
Amazon.com and Microsoft Corporation (MSFT) are the obvious plays for investors. But it’s the less-obvious play that I’m interested in. That opportunity is in the firms that will ultimately provide the gear needed to push computing closer to the edge.
Nutanix (NTNX) makes Software-as-a-Service products that converge enterprise compute, storage and virtualization into one layer of software. As more data processing moves from the large data centers to the edge of networks, convergence becomes more important than ever.
On Monday, Gartner declared that Nutanix makes best-in-class software. This is a big deal because the total addressable market for hyperconverged infrastructure, according to market-research firm IDC, grew by 23.7% year-over-year in the second quarter of 2019.
And this market is expected to grow by 50% next year.
Nutanix sales rose 7% in fiscal 2019, to $1.24 billion. At $36.15, the stock trades at 4.5x sales. That is relatively inexpensive given the potential size of the hyperconverged market. It’s also far off the June 2018 high at $65.
The bottom line is the next big wave of computing is on the horizon. It’s going to be a huge new opportunity for investors, no matter how you decide to play it.
Jon Markman, Pivotal Point, issues@e.moneyandmarkets.com, 1-800-291-8545, December 4, 2019