Nutanix CEO: Cloud demand driven by push to go digital

Cloud computing and software company Nutanix (NTNX) blew past its fiscal second-quarter earnings results, posting gains of $0.46 per share. Nutanix CEO Rajiv Ramaswami joins Yahoo Finance Live to discuss the company's guidance and avenues for growth.

Demand is "it's more fundamentally driven by the fact that every company out there is going digital. And as they go digital, it's modern applications that they have to go build, and they need a model platform to run those applications," Ramaswami says. "And those applications and the data they need and consume and generate are everywhere... They're running it in their data centers... and even when you look at some of the most modern new things they're doing with generative AI, it's the same story."

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

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: Cloud software company Nutanix is seeing its shares climb today after raising its full-year guidance and reporting GAAP operating profitability for the first time in its second quarter. For more on this, we've got Rajiv Ramaswami who is the Nutanix CEO back with us here on Yahoo Finance. Rajiv, always a pleasure to grab some of your time here on the day. Investors rewarding this particular quarterly performance here. What do you think was one of the largest catalysts that really sticks out and does that continue to have some legs going into the rest of this year?

RAJIV RAMASWAMI: Yeah, I think three factors drove our outperformance. And first of all, we're proud that this is the seventh quarter in a row we're doing this. First, we have a strong and growing base of renewables and happy customers who want to continue doing business with us and expand. Second, we've been very disciplined about our operating costs and controlling them carefully. And this combination has led us to raise our free cash flow guide as well as our top line guide for the year.

And third from a demand environment perspective, there's a couple of things happening. First, companies are now operating more and more in a world that's hybrid multi-cloud. Apps and data are everywhere and they need a platform like ours to help them manage that complexity and run their applications as is critical to their business. And also, our biggest competitor VMware just got buy bought by Broadcom and that's creating a lot of concern among our customers. And we are starting to benefit from that fallout.

SEANA SMITH: Yeah, Rajiv, if you could talk a little bit more about that because you mentioned the recent actions of Broadcom, how that's created a significant multi-year opportunity for us. Walk me through just what you see that opportunity looks like in terms of new customers and in terms of winning even more market share.

RAJIV RAMASWAMI: Yeah. I mean, clearly I think both the acquisition customers are now expecting higher price raises. They're seeing partners, their channel partners being disrupted. And so many customers have been engaging with us to figure out how they can reduce their dependence and we are perhaps the simplest and easiest alternative for companies looking to reduce their dependence on VMware. So we've had lots of conversations with many, many customers who weren't prior customers before.

Now, at the same time, though, this is a long term multi-year opportunity. Many companies signed multi-year deals with VMware just before the acquisition closed and then an infrastructure modernization effort and migration effort does take time. It's not just overnight. Sometimes there's hardware refresh cycles associated with it.

And then also there's also a land and expand motion for us. Companies will start by making a small investment in our platform and then they will grow over time. So for all these reasons, it's a long term multi-year opportunity that we see here and are benefiting from.

BRAD SMITH: Significant jump here that we saw year over year in free cash flow as you kind of model out even further into the rest of this year. Where do you continue to reinvest some of that cash back into the business for further growth?

RAJIV RAMASWAMI: Yeah, we are continuing to invest. In fact, for many years, we were holding our OpEx very flat. But this is the year we are investing and we are investing prudently.

We are investing in our R&D efforts, continuing to drive innovation. And we are investing in sales and go to market to capitalize on this opportunity from a demand perspective. So both of those, we are putting money back into the business and we're still very much focused on achieving both long-term growth and sustained free cash flow generation.

SEANA SMITH: Rajiv, what are you seeing just in terms of that demand? Break it down even further for us, whether it's on a regional basis, whether it's on even within here, the US. Where are you seeing that demand coming from and I guess how is that then impacting your strategy then going forward?

RAJIV RAMASWAMI: Yeah, I think the demand is very broad based. It's not specific to a particular region. We operate globally across all theaters here, US, EMEA, and the Asia-Pacific, and it's pretty broad based.

It's more fundamentally driven by the fact that every company out there is going digital. And as they go digital, it's modern applications that they have to go build and they need a modern platform to run those applications. And those applications and the data they need, and consume, and generate are everywhere.

They're running these in the public cloud, some. They're running it in their data centers. They're running it in the edges.

And even if you look at some of the most modern new things they're doing with generative AI, it's the same story, right? Starting out perhaps in the public cloud, but really running where the data is, which is on prem over time and also in the edge and moving to inferencing. So these types of factors are fundamentally driving an investment cycle for our customers in terms of modernizing their infrastructure and that's what we are seeing in terms of the benefit to our platform.

BRAD SMITH: And so does AI then in that case just create one more cloud within this broader kind of multi-cloud ecosystem that a lot of companies are operating on top of and trying to connect all those data pieces? How does that and connecting that additional AI or generative AI inferential cloud translate into monetization for your business?

RAJIV RAMASWAMI: Yeah, in fact, where we come into play with respect to running AI is that AI needs to run where the data is and data is everywhere. Some of it is sitting inside customer data centers. In fact, the most precious data usually sits there. And then there's a lot of data being generated at the edge that needs to be analyzed and you need to drive inference.

So companies need simple solutions to run these AI workloads and that's what we provide with Nutanix's GPT in a Box as we call it. And it's still very early days. Many of our customers are still experimenting with generative AI although they run traditional AI workloads. And so we look at this as companies trying to become more efficient, drive more productivity for their people. And we think this is, again, another long-term trend that's very, very early days.

SEANA SMITH: All right, Rajiv Ramaswami, thanks so much for taking the time to join us again here on your earnings report. CEO of Nutanix, thanks.

RAJIV RAMASWAMI: Thank you Brad and Seana.