AI will translate into 'real business' and ROI benefits: Nutanix CEO

Nutanix, Inc. (NTNX) shares trend higher this morning on the cloud service provider's upbeat guidance on revenue growth and profitability. Nutanix CEO Rajiv Ramaswami sits down with Yahoo Finance from the Nasdaq MarketSite to discuss the provider's multi-cloud hybrid business model and its views on artificial intelligence.

AI is "going to be a long-term trend," Ramaswami says. "There's a lot of buzz right now about AI... being trained in the public cloud. At the end of the day, just like with everything else, people are going to have to realize good ROI [and] TCO benefits with AI."

Ramaswami also comments on the cloud company's partnership with Cisco (CSCO).

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: Nutanix shares are on the move this morning. You're seeing them move higher by about 4% after the cloud company gave investors something to smile about, expecting annual recurring revenue growth of 20% by 2027 and projected profitability ahead of prior targets. For more on this, we're joined by Rajiv Ramaswami who is the Nutanix CEO. Thanks so much for taking the time here with us today.

RAJIV RAMASWAMI: Great to be here live with you guys, Brad and Seana. I've done a lot remotely, and it's great to be here live in the studio, so.

BRAD SMITH: I've in living color here in Times Square for sure here. We got to talk about what you guys unveiled and talked about at the investor day yesterday, and really the street latching on to this updated guidance. What propelled you guys to really-- and led you guys to bring that type of guidance out to investors, and the confidence that went into that?

RAJIV RAMASWAMI: Yeah. So just to quickly recap the financial model that we talked about, the medium term financial model over the next three years, we said we were driving to be a $3 billion ARR company, subscription company, software company at scale driving 20% approximately CAGR for ARR growth between now and then, and driving $800 million roughly of free cash flow.

So driving strong, durable growth while increasing profitability. And that is, of course, well received by investors. But let me talk about the drivers behind that. So fundamentally, we've done a lot of work over the last few years to go through our subscription transformation. And we are largely done with that, and now, scaling.

And as you look at what that is, we are also exposed to some key trends in the market. Companies are now running apps and data everywhere. It's not just one location, not just public cloud, not just data centers. And we are the best platform to enable that to happen. So that's a good long-term trend here that we are benefiting from in terms of being the platform for companies doing that.

There's also a few other things happening in the marketplace. We've all talked about AI and that's a good-long term driver. As companies build more AI applications, we can help them run those AI applications wherever they'd like to run, right?

SEANA SMITH: Yeah. How much of a driver is that for you?

RAJIV RAMASWAMI: It's a long-term driver. It's people are just getting started now with Jenni AI. We've had some legacy applications running on our platform for a while, but Jenni AI is a whole new thing. And people are experimenting. And I think we'll go from experimenting to real production probably over the next few years.

A couple of other trends quickly, our largest competitor is being bought, and we are the most viable easiest, simplest alternative to them. And of course, we just announced some new partnerships. I'm excited about the one that we just announced with Cisco, where they are focused on selling our products and no longer selling their own.

BRAD SMITH: Yeah. Investors are excited about that too. I mean, we saw that come out, and one of the analyst notes early this morning that was cited. Also cited was expense controls for the company, no expiry buyback plan, tucked in acquisitions. So all of these things considered, investors might be right to think to themselves right now, OK, so what the heck is hybrid multi-cloud? And why should we still care about that within our portfolio?

RAJIV RAMASWAMI: Great question. So it fundamentally comes down to what companies are doing. They're going digital. And when they go digital, the lifeblood is all about applications and the data that they consume. And everybody, you guys are a tech company, right, doing broadcasting. And every company is becoming a software company, and it's all about the app.

And they need a platform to run these apps. And they're going to run everywhere. Some of them are going to be in public cloud, some of them are going to be in data centers. Some of them are going to be running in factory edges and retail stores. And they need a platform. This is what we call hybrid cloud, or hybrid multi-cloud, which is these apps and data are everywhere. And they need a platform to run these apps on. That is precisely what we do.

SEANA SMITH: And the partnership that you have with Cisco, going back to what you just said a moment ago, and focusing a little bit more on that, just how is that taking shape? I know you just announced it about a month ago, but what does this also tell investors and tell Wall Street just about the direction of Nutanix and where you see the company in three to five years from now?

RAJIV RAMASWAMI: Yeah. I mean, we see the company as scale subscription company, but truly with a broad ecosystem of partners. And that's really how we go to market. That's how we partner, that's how we meet customer demand. At the end of the day, customers are looking for a complete solution.

Now, if you look at the Cisco piece in particular, it's great for customers because they trust Cisco. And here, we have a highly integrated solution that delivers everything in one place, right, delivered by Cisco vendor they trust. It's great for Cisco because they're now selling our market leading solution in the marketplace. It's great for us because it expands our routes to market. I'm excited about it.

BRAD SMITH: You said AI is huge for you. When do you see that delivering significantly for your bottom line?

RAJIV RAMASWAMI: Yeah, I think that's going to be a long-term trend here. We just introduced our AI solution literally a couple of months ago here. And customers, like I said, companies are still trying to figure out how to get these AI applications. There's a lot of buzz right now about AI, large language models being trained in the public cloud.

At the end of the day, just like with everything else, people are going to have to realize good ROI TCO benefits with AI, right? It has to count. And so investments have to provide a return. And we're going to see the same thing happen with AI as well over the next few years as real commercial applications get deployed.

SEANA SMITH: I'm curious, as someone within this space obviously, and you've had an exposure now to AI for quite some time, what do you make of all the hype all of a sudden around AI, and what we've seen surrounding generative AI, and how many investors, how many companies are now even just mentioning AI in their earnings calls?

RAJIV RAMASWAMI: Yeah, I mean, I think it's just--

SEANA SMITH: This is good news for you.

RAJIV RAMASWAMI: It's good for us. From our perspective, we look at it as, hey, here's a whole new set of applications that companies are going to build that use AI. And guess where they would run? Well, we'd love for them to run on our platform, and we are a good platform to run those. So that's how we look at it.

But clearly again, there is a cycle here, right? There's a lot of interest. There's a lot of buzz. There's a lot of experimentation going on now. And then over time, that's going to translate to real business being delivered with real results being delivered. And that's when it becomes a sustainable thing. And I do think it's going to be a sustainable long-term play for many companies.

BRAD SMITH: Just lastly while we have here, Nutanix shares are up 16% over the past month. It's been a tough month for some of the tech stocks out there as we're taking a look at the NASDAQ composite down over the past month by about 4%. So you think about what this has meant for you, the announcement with Cisco, the partnerships. You were mentioning Micron even before we came on here. How significant is this in terms of the-- not just annual recurring revenue that you're expecting, but the growth perspective for a company like Nutanix?

RAJIV RAMASWAMI: I truly believe this is our time as a company. You know, we've done all the hard work. And now, we're starting to see the fruits of everything we did over the last few years here in terms of building a long-term company at scale, sustainably growing $3 billion plus of ARR in three years from now, highly profitable in that time period, meeting the needs of-- critical needs of customers who are looking to run apps and data. So we're excited about our long-term future. And you're seeing that reflected in some of our stock over the last month.

SEANA SMITH: Rajiv Ramaswami, great to have you. Thanks so much for hopping on here with us in person at the NASDAQ. CEO of Nutanix, thanks again.

RAJIV RAMASWAMI: Thank you very much.