‘VARs’ Strike Back: Nutanix Stock Has Been Upgraded To ‘Outperform,’ Citing VMware Partner Disruption

‘The disruption in the infrastructure software space stemming from Broadcom’s recent acquisition of VMware is turning out to be more significant than we expected, per our recent round of VAR discussions,’ wrote a William Blair analyst in a research note published Wednesday.

William Blair, the investment adviser, has upgraded VMware rival Nutanix shares from “market perform” to “outperform” in the wake of what it calls the “disruption” in the VMware partner community.

After the William Blair report was released Wednesday, Nutanix shares rose 5 percent to end the day at $52.79.

“The disruption in the infrastructure software space stemming from Broadcom’s recent acquisition of VMware is turning out to be more significant than we expected, per our recent round of VAR discussions,” wrote an analyst with William Blair.

William Blair expects the disruption to lead to share gains in the virtualization sector for Nutanix, outperforming the market in the current quarter.

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The research firm advises mutual funds, investment advisory firms, banks, pension funds and insurance companies. It won five best-in-class rankings for research in the 2023 Coalition Greenwich Study.

“Broadcom is taking VMware’s top accounts direct; raising prices; eliminating traditional product bundles, incentives, and deal registrations; removing the ability to sell perpetual licenses; and lifting the threshold for the roughly 50,000 VMware VARs to qualify for the Broadcom partner program,” the analysts wrote.

According to the analysts, it’s that pile-up of disruptions to the VMware reseller partner community that has created a “seminal moment” for Nutanix to take share from VMware.

“While we expected Nutanix to benefit from this disruption, the VAR community sees a multiyear runway for the Nutanix Cloud Platform (HCI) and Nutanix AHV (Acropolis Hypervisor) to take market share from VMware (from vSAN and ESX, respectively),” analysts wrote. “VARs say customers are already starting to look at alternatives and planning away from their historical dependence on VMware’s dominant ESX hypervisor—creating a seminal moment for Nutanix AHV to be a true contender to ESX, although this will not happen overnight and will be an easier change for smaller customers.”

The researchers said larger VMware customers began migrating away from VMware, inking multimillion- dollar deals with Nutanix at the end of last year, and the move is ongoing.

“While certain large VMware customers fearful of the acquisition’s implications have already signed multimillion-dollar deals with Nutanix, our VAR conversations highlighted that these types of displacement deals continued in the fourth quarter of 2023.”

Advisers at William Blair wrote that traditional Cisco VARs also are seeing a major uptick in activity around the recently unveiled partnership with Nutanix called Cisco Compute Hyperconverged with Nutanix.

“The catalyst for this partnership was Cisco’s sunsetting of its Hyper-Flex product, which struggled for years to gain traction in the HCI market,” they wrote. “Beyond the obvious opportunity to replace Hyper-Flex at term license expiry, the disruption at VMware creates a greater incentive for customers to adopt AHV as part of the combined UCS-Nutanix solution.”