Small and mid-cap growth stocks are experiencing high expectations that may lead to disappointments this earnings quarter, as seen with Nutanix, a company specializing in hybrid and private cloud deployments. Despite strong fiscal Q3 results, a weak Q4 outlook caused the stock to drop more than 25%, bringing the YTD gains to 20%. Nutanix has been riding on hopes of AI tailwinds but faces challenges with its valuation and competition against public cloud services.
The company continues to grow aggressively with generative AI applications driving workload expansion. However, risks such as competition with public cloud services and slowing growth rates remain. The stock’s valuation has been pushed up due to AI fervor, leading to high multiples that may not have much room for further expansion. Analysts predict a range-bound trading scenario for Nutanix in the short term, with potential for valuation multiples to compress over time.
In Q3, Nutanix’s revenue grew 17% year-over-year, exceeding Wall Street’s expectations. However, the company’s Q4 outlook, predicting slower growth at the midpoint, disappointed investors. Management attributes the slowdown to a higher mix of larger strategic deals in the pipeline that take longer to close. Despite these challenges, Nutanix has maintained profitability with growing operating margins.
In the short term, a rebound is possible for Nutanix post-earnings dip, but the stock may not easily recover to previous levels. Investors should monitor the situation closely and be cautious about holding the stock for the long term. The company’s focus on a healthy pipeline and profitability may help it outperform in Q4, but long-term growth prospects are uncertain given the competitive landscape and challenges in the cloud services market.
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https://seekingalpha.com/article/4696892-nutanix-a-buyable-dip-especially-when-weaker-outlook-may-just-be-about-deal-timing