Why Nutanix rose 25.1% in August

Shares of hybrid cloud software provider Nutanix (NTNX -4.36%) According to data from S&P Global Market Intelligence, the company’s shares rose 25.1% in August.

Nutanix’s fiscal fourth-quarter earnings report, released on August 28, topped analyst estimates and provided solid guidance for the full year.

Increase and improve results with healthy free cash flow

Nutanix increased revenue 11% to $548 million in the quarter, while reporting adjusted (non-GAAP) earnings per share of $0.27, both of which beat analyst estimates. The company also forecast revenue of $570 million for the first half of the year, showing nice sequential growth, and $2.345 billion to $2.465 billion for the coming year. The full-year guidance calls for an 11.7% growth rate in the middle of the year just ended, so the acceleration from the fourth-quarter growth rate likely encouraged investors.

Of note, the company’s annualized recurring revenue (ARR) rose a whopping 22%. Free cash flow accelerated significantly in the quarter, reaching $224.3 million, compared to just $45.5 million in the same quarter a year earlier.

On a positive note, CEO Rajiv Ramaswami said the company saw the most “new logos,” or new customers, than it has in three years. That may be because Nutanix’s hyperconverged software competes with VMware, which was acquired last year by Broadcom (AVGO -10.36%)Broadcom has focused more on the largest companies since the acquisition and raised prices, which has clearly opened up opportunities for small and midsize businesses for Nutanix. That said, Nutanix has also seen some big customer wins.

Nutanix is ​​reasonably priced for an AI software stock

Nutanix isn’t a stock directly related to artificial intelligence (AI), but it should benefit from the AI ​​trend because its software helps companies manage their hybrid cloud offerings by unifying data between the cloud and on-premises data centers. It’s highly likely that many companies will want more of this as they manage AI training in the cloud but also seek to protect their data and run inference workloads on-premises. At 6.9 times trailing sales and 24.8 times free cash flow, Nutanix seems reasonably valued, especially in the software world, where valuations tend to be higher.