‘This last quarter our two largest wins came through partnering with service providers—these are service providers who in some cases will take us and sell through and provide a service to their customers,’ Nutanix CEO Rajiv Ramaswami says on the company’s earnings call.
The two biggest Nutanix deals last quarter came through its channel partners, CEO Rajiv Ramaswami said during the company’s earnings call Tuesday as Nutanix beat revenue guidance and achieved positive operating income for the first time in its history.
“This last quarter our two largest wins came through partnering with service providers—these are service providers who in some cases will take us and sell through and provide a service to their customers,” he said.
The two new customers were in data center in the U.S. and an EMEA-based publishing company, which is using Nutanix cloud to run all of its business applications and added Nutanix storage for data needs, Ramaswami said.
“We are seeing a trend in the market where more customers would like to consume more offerings delivered to them as a service. There are many routes to get there. One of the first routes is through service providers. ... HPE GreenLake is another approach. They can provide a combined hardware/software offering as a service in a subscription model to their customers.”
[RELATED: Winslow Technology Group’s CTO On Nutanix’s Future, Cloud Spending And Other Tech Trends In 2023]
Nutanix said in addition to beating revenue guidance by $22 million, it achieved positive non-GAAP income for the first time in the company’s history. Nutanix said it will begin providing updates on its free cash flow once a year.
Ramaswami once again said the looming acquisition of Nutanix’s chief rival, VMware, by Broadcom would not impact its fiscal 2023 outlook as the company’s sales cycles are typically between nine and 12 months. However, he said the Nutanix sales organization has seen “significantly higher levels of engagement” from prospective customers looking at Nutanix.
“We are all studying the news around Broadcom acquiring VMware. What we have seen is a significantly higher level of engagement from prospective customers. These customers are looking to explore their options, looking at managing potential risks related to the transaction. As you know, sales cycles for these larger deals tend to be around nine to 12 months so we’re not assuming any significant benefit from that in our fiscal 2023 outlook, but I can certainly tell you the volume of conversations with customers and prospective [customers] around this syllabu has increased and we are a good alternative provider.”
Nutanix reported first-quarter revenue of $433.6 million, up 15 percent from the same period last year. Nutanix’s annual recuring revenue increased to $1.28 billion, up 34 percent year over year.
On the first of this month, there was news about Hewlett Packard Enterprise (NYSE:HPE) possibly acquiring hyperconverged specialist Nutanix (NASDAQ:NASDAQ:NTNX) whose stock had already benefited from a 24% upside in October (orange chart below) after analysts sensed a possible takeover interest from a number of contenders also included International Business Machines (IBM), Cisco (NASDAQ:CSCO), and private equity.
My objective with this thesis is to show why it is HPE that should benefit the most from such an acquisition, while at the same time, I will elaborate on how Nutanix is profiting from the uncertainty surrounding VMWare (VMW).
First, for those new to HPE, it operates across five segments as pictured below with compute (including the server business) which contributed to the bulk of revenues in the fourth quarter (Q4) for fiscal 2022 which ended on October 31.
Its annual revenues have been progressing, rather erratically over the last years, but Q4's sales of $7.87 billion constituted a record with the company issuing a strong forecast for FY 2023. However, Compute is a lower-margin business explains the company's lower profitability compared to the likes of IBM and Cisco as shown in the table below. Now, while these three companies differ in industry, the difference between their gross margins remains significant.
Exploring further, one of the reasons for this difference in profitability is the degree to which these companies have re-engineered their technologies to contain a higher dose of software as part of the product mix. As I explained in a previous thesis, for the last three years, Cisco has been increasingly focusing on software-based networks as exemplified by its SD-WAN (Software Defined Wide Area Network). As for IBM, with its Red Hat acquisition in 2019, it has virtualization software that enables IT Admins, to build systems compatible with the cloud.
As for HPE, it has surely innovated with its Greenlake offering which allows customers to invest less Capex in hardware and instead consume infrastructure in an as-a-service fashion. For this purpose, the company has had to forge partnership agreements with both Nutanix and VMWare, and its Greenlake offering is gaining traction with ARR or annual recurring revenue increased by 25% in Q4
Focusing on the HPE-Nutanix partnership, it enables customers to purchase hardware and cloud-native stuff together with hyper-converged infrastructure simultaneously.
Looking deeper into hyper-convergence, this is the combination of computing, storage, and networking together in an all-in-one infrastructure called HCI or hyperconverged infrastructure. Now, Nutanix has gained popularity with its HCI software which makes the task of IT administration in an enterprise less complex, namely by consolidating discreet components in an integrated way.
Looking at the financial aspect, with its HCI software, Nutanix enjoys a gross margin of above 80% as seen in the table below. Thus, in case it merges with HPE, the latter's profitability can Excellerate significantly, to be more at par with IBM and Cisco.
There are other nice things about HCI, but as seen by Nutanix's negative EBIT margins above, it is currently operating at a loss.
Therefore, an acquisition by a larger company also makes sense for the company to grow profitably as part of a merged entity. I have covered the company before and its management certainly prioritizes "profitable growth". Thus, the operating loss has seen a downtrend over the last five years, with the company also delivering first-time positive non-GAAP operating profits in its first quarter (Q1) for fiscal FY2023 which ended in October.
However, given an economic environment that is characterized by high wage inflation, it may not be possible for the company to further optimize costs in 2023, and heightened recession risks also diminish the company's ability to increase product pricing, out of fear that clients may switch to the competition.
Investigating the reason for the operating loss, the SG&A (sales, general and administrative) expenses as a percentage of revenues in Q1 was 65%, signifying that the company is incurring relatively high marketing costs, a consequence of competition.
Looking deeper into the competition, in addition to Nutanix, VMWare is also a leader in HCI software in Gartner's magic quadrant dated November 2021 as pictured below.
Moreover, with Broadcom's (NASDAQ:AVGO) acquisition of VMWare to become part of its infrastructure software division, there is some uncertainty about the way its technology will evolve. In respect, just like Advanced Micro Devices (NASDAQ:AMD) was adversely impacted by the VMware per-CPU pricing model in 2020, any change in this respect can have an impact on HPE's margins. Furthermore, in case Cisco or private equity acquires Nutanix, HPE could again be faced with further uncertainty as to a partner, all depending on the objectives of the merged entity.
Looking at the potential contenders, with its $34 billion acquisition of virtualization and HCI play Red Hat in 2019, there is less probability of IBM going for Nutanix. As for Cisco, in addition to shifting toward software-centric solutions for networking, it also manufactures the UCS range of servers. In this respect, it acquired HCI developer Springpath for $320 million in 2017 and has a partnership with Nutanix for delivering the latter's enterprise Cloud OS software on its server platforms.
This implies that Cisco should also be interested, but, being primarily a networking and security play, the company is more focused on maintaining its market share in switching, firewalls, routing, and optical as well as bringing more resiliency and flexibility in its supply chain.
Instead, acquiring Nutanix will be a logical step for HPE, not only to obtain full control of its HCI value chain for its Greenlake product offering but also advances its strategy in the fast-growing and high-margin hyperconverged market. Looking further, this move towards software-driven higher margins originates in HPE's acquisition of SimpliVity in 2017 for $650 million in order to design complete, built-for-enterprise HCI offerings for customers.
Furthermore, HPE's gross margins have indeed improved by around 4% from 2018 to 2021, partly due to Simplivity. Now, just imagine how much profits can Excellerate by acquiring Nutanix which is valued at about 12 times more.
First, based on the $61 billion Broadcom spent on VMWare which translates into approximately 4.6x VMWare's FY2021 sales, Nutanix with revenues of $1.9 billion for its last fiscal year could fetch around $8.74 billion (1.9 x 4.6). In order to finance such a deal, HPE has cash of $4.16 billion but debt totaling $12.46 billion. However, with a debt-to-capital ratio of only 24.26%, it has the capacity to borrow.
Second, looking at the growth prospects, I assume a potential merged HPE-Nutanix entity to impact HPE fiscal year 2024. This would boost HPE's revenue growth from analysts' forecast of 1.49% to 8.47% pictured in the table below as the $29.5 billion forecast gets added to Nutanix's $2.06 billion. Conversely, the price-to-sales multiple should be down to 0.65x from the initial figure of 0.7x. This translates into a target of $17.3 ((31.56/29.5)*16.3)) based on the share price of $16.3.
This estimate does not consider margin gains, which should be significant given Nutanix's gross profits.
As for Nutanix, currently priced at around $30, the stock, while having resisted the volatility impacting the broader technology sector better since the beginning of 2022, is still below its pre-Covid high of $37 by more than 23% as shown by the chart below.
One of the reasons for its exact outperforming of both the broader market and the Invesco QQQ Trust (QQQ) is that it is profiting from the uncertainty created by the Broadcom-VMWare deal among MSPs (managed service providers) which sell and support technology in different parts of the world.
Thus, both the uncertainty factor and acquisition-related momentum could propel the stock back to the $37 level. For this matter, analysts have a buy rating with a $31-$32 target on the stock, but, they also add that interest from a strategic buyer could skew the price higher. Now, HPE is indeed a strategic buyer.
Therefore, when considering a strategic buyout, it is HPE that should benefit the most from revenue synergies as it essentially buys out one of Simplivity's competitors, in addition to better positioning it's Greenlake infrastructure-as-a-service offering. This should also be both revenue and earnings accretive acquisition, but, I have a hold position as tech should be grappled by more volatility with a stronger-than-expected U.S. economy implying that the Fed may have to raise interest rates for longer.
On the other hand, I am bullish for Nutanix with a $37 buy rating as the company is approached by more VMware customers concerned about their data center infrastructure solutions for support, and costing. As a result, the company is getting more business and ended its fiscal 2022 results with a record level of backlog. Also, ACV billings in Q1 were significantly above guidance and represented a year-over-year growth of 27%. Thus, while not being completely immune to economic slowdown risks, its HCI enables hybrid data centers to benefit from a cloud-like scale together with the associated economics, without having to sacrifice factors like resiliency and performance.
“I’ve been a part of acquisitions by HPE before,” said Tim Joyce, president of Roundstone solutions, a Nutanix partner in Orinda, Calif. “HPE is where innovative companies go to die. Look what they did with SImplivity. Why would Nutanix be any different?”
Nutanix shares were trading up five percent to $29.75 after a Bloomberg report that Hewlett Packard Enterprise (HPE) had expressed takeover interest and even held discussions with Nutanix in exact months.
Bloomberg, quoting sources familair with the matter, reported that the “talks between the companies have been on and off and it’s unclear whether they will be able to reach an agreement over price.”
Nutanix, whose current market cap stands at $6.94 billion, could also opt to stay independent or another potential buyer could emerge, Bloomberg reported. HPE’s current market cap is $21.5 billion.
[RELATED: Nutanix’s ‘Two Largest Wins’ Came Through Partners As Company Posts Strong First Quarter]
An HPE spokesperson said the company does not comment on rumors or speculation. A Nutanix spokesperson said the company also doesn’t respond to market speculation.
The Wall Street Journal reported a month ago that Nutanix was actively shopping the company to potential buyers.
Spring, Texas-based edge-to-cloud tech giant HPE and San Jose, Calif.-based hyperconverged infrastructure software superstar Nutanix have had a long-standing partnership that began three years ago with a global strategic partnership that integrated Nutanix software on HPE servers. That deal resulted in Nutanix’s Enterprise Cloud OS software being made available through the HPE GreenLake cloud pay-per-use service.
The HPE-Nutanix deal also resulted in the two companies creating integrated appliances that tie Nutanix software to HPE ProLiant and Apollo servers.
“I can certainly see the appeal of a potential deal for Nutanix, but the question I would ask is what would HPE do with Simplivity which competes with Nutanix,” said a top executive for a solution provider who did not want to be identified.
One longtime Nutanix partner said any deal between the two companies would be a “huge mistake.”
“I’ve been a part of acquisitions by HPE before,” said Tim Joyce, president of Roundstone Solutions, a Nutanix partner in Orinda, Calif. “HPE is where innovative companies go to die. Look what they did with SimpliVity. Why would Nutanix be any different?”
Hewlett Packard Enterprise (HPE) may have hyperconverged infrastructure vendor Nutanix on its wishlist this holiday season as the OEM reportedly weighs an acquisition bid.…
Citing people familiar with the matter, Bloomberg this week reported that HPE has been in talks on and off over the past few months to acquire the converged virtualization and storage vendor. Rumors of a takeover have been circulating around Wall Street since October when it was first reported that the company was exploring a sale.
However, since its market cap fell to $3.1 billion this summer – a development that likely spurred initial interest in an acquisition – Nutanix's financials have improved steadily. In fiscal year 2022 the company's net losses totaled $798 million.
As of its Q1 2023, Nutanix appears to have gotten the bleeding under control, managing to curb its losses and pushing the company's market cap to $6.24 billion in the process. If Nutanix can keep up this trend, the company very well could post a profit before the new year is out.
So what could HPE possibly want with Nutanix? One potential destination for the company's virtualization and storage stack could be HPE's GreenLake everything-as-a-service (XaaS) platform.
As our sister site The Next Platform recently postulated, the only companies willing to drop the kind of cash necessary to buy Nutanix would likely be one of the major cloud providers – Amazon, Microsoft, or Google – which could use the company's software stack as a "quick and dirty" way to sell customers on hybrid cloud.
However, the same qualities that would make Nutanix's virtualization and storage suite attractive to cloud providers would also fit nicely into HPE's GreenLake software strategy.
Introduced in 2018, GreenLake was HPE's bid to bring cloud-style consumption-based pricing to on-prem datacenters. In 2019, HPE announced plans to bring its full portfolio under the GreenLake umbrella.
But unlike rival XaaS vendors, like Lenovo TruScale, HPE has leaned heavily on software to sell its GreenLake vision – developing a cloud-esque control plane of its own.
And over the past few years the company has regularly rolled out additional functionality – like Kubernetes, block storage, and operations management – to make buying GreenLake feel less like leasing hardware and more like a private cloud.
Despite these efforts, HPE has struggled to sell its more than 80,000 global partners on the model. Late last year, the company admitted that just 900 of its global partners had agreed to resell the platform.
As such, HPE may see Nutanix as a way to attract more customers to its XaaS platform.
Such a strategy would stand in stark contrast to that of rival Dell. Rather than integrating VMware's virtualization stack into its own Apex XaaS service, Dell spun off the virtualization giant late last year. Meanwhile, Lenovo has gone out of its way to avoid the issue of software wherever possible, preferring to partner with software vendors rather than buy or build its own private and/or hybrid cloud stack. ®
Nutanix NTNX reported non-GAAP first-quarter fiscal 2023 earnings of 3 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 12 cents and a year-ago quarter’s loss of 22 cents.
Nutanix reported revenues of $433.6 million, beating the Zacks Consensus Estimate of $413.1 million. The top line climbed 15% from the year-ago quarter’s figure of $378.5 million. NTNX noted that the average contract term length declined to 3.0 years from 3.1 years in the year-ago quarter, primarily due to higher federal businesses that usually have shorter contract term lengths.
During the fiscal first quarter, Nutanix’s Annual Contract Value (ACV) billings jumped 27% to $231.9 million.
Nutanix Price, Consensus and EPS Surprise
Nutanix price-consensus-eps-surprise-chart | Nutanix Quote
Product revenues (48.1% of revenues) increased 15.8% year over year to $208.6 million. Support, entitlements & other services revenues (52 % of revenues) grew 13% to $225 million.
The top line was primarily driven by growth in NTNX’s core hyper-converged infrastructure software and the solid adoption of its new capabilities. Nutanix continues to witness a strong adoption of its hybrid multi-cloud solutions across Fortune 100 and Global 2000 companies.
Subscription revenues (92.9% of revenues) climbed 19% from the year-ago quarter’s figure to $402.9 million. However, professional services revenues (5.1% of revenues) declined 7.5% to $22.3 million.
Non-Portable Software revenues (1.8% of revenues) plunged 45.5% year over year to $7.8 million. Hardware revenues (0.1% of revenues) slumped 71.2% to $624 million.
Billings were up 18% year over year to $469.7 million. Annual Recurring Revenues climbed 34% to $1.28 billion.
During the fiscal first quarter, Nutanix added 530 customers, taking the total number of clients to 23,130.
During the fiscal first quarter, Nutanix’s non-GAAP gross margin expanded 130 basis points (bps) year over year and 80 bps sequentially to 83.4%.
Non-GAAP operating expenses decreased 0.4% year over year to $351.1 million.
As of Oct 31, 2022, cash and cash equivalents plus short-term investments were $1.39 billion, up from $1.32 billion at the end of fourth-quarter fiscal 2022.
During the first quarter of fiscal 2023, cash utilized through operating activities was $65.5 million and free cash flow was $45.8 million.
For the second quarter of fiscal 2023, Nutanix expects ACV billings between $245 million and $250 million. Revenues are estimated between $460 million and $470 million.
Non-GAAP gross margin is estimated to be in the 82-83% range. Non-GAAP operating margin is expected in the band of 5-10%.
For the full fiscal 2023, NTNX expects ACV billings between $895 million and $900 million. Revenues are estimated in the range of $1.77-$1.78 billion.
Non-GAAP gross margin is estimated to be 82-83% for fiscal 2023. Non-GAAP operating margin is projected in the range of 2-4%.
Nutanix currently carries a Zacks Rank #3 (Hold). Shares of NTNX have declined 11.8% in the past year.
Some top-ranked stocks from the broader Computer and Technology sector are Celestica CLS, Fabrinet FN and Zscaler ZS. While Celestica flaunts a Zacks Rank #1 (Strong Buy), Fabrinet and Zscaler carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Celestica’s fourth-quarter 2022 earnings has increased by 9 cents to 53 cents per share over the past 60 days. For 2022, earnings estimates have moved 16 cents up to $1.86 per share in the past 60 days.
CLS' earnings beat the Zacks Consensus Estimate in all the preceding four quarters, the average surprise being 11.8%. Shares of the company have moved up 13.3% in the past year.
The Zacks Consensus Estimate for Fabrinet's second-quarter fiscal 2023 earnings has been revised 16 cents northward to $1.89 per share over the past 30 days. For fiscal 2023, earnings estimates have improved 7.6% to $7.48 per share in the past 30 days.
FN’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters, missing once, the average surprise being 5.4%. Shares of the company have gained 16.6% in the past year.
The Zacks Consensus Estimate for Zscaler's first-quarter fiscal 2023 earnings has been revised 7 cents north to 26 cents per share over the past 90 days. For fiscal 2023, earnings estimates have moved south by a penny to $1.17 per share in the past 30 days.
ZS' earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 28.6%. Shares of the company have declined 58.1% in the past year.
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Data center infrastructure suppliers Pure Storage Inc. and Nutanix Inc. both sprung a surprise on Wall Street today, posting earnings and revenue that topped analysts’ expectations. However, the results failed to excite investors all that much, as both companies’ shares stayed more or less flat after-hours.
Pure Storage has put together a string of impressive quarters over the past couple of years, and once again it managed to ease fears that the faltering economy might harm its prospects. The company reported a net loss of $787,000 for the third quarter, with earnings before certain costs such as stock compensation coming to 31 cents per share. Revenue came to $676.1 million, up 20% from a year earlier.
Both numbers beat Wall Street’s forecasts, with analysts targeting adjusted earnings of 26 cents per share on revenue of $671.8 million.
Pure Storage Chairman and Chief Executive Charles Giancarlo (pictured, above) said a growing number of customers across the world are relying on his company to satisfy their mission-critical storage and management needs. “With the power of our unique Flash-optimized technology and differentiated business model, we look forward to managing increasingly more of their data storage requirements,” he said.
Pure Storage delivered some impressive numbers across the board, with its subscription services revenue rising 30%, to $244.8 million. Annual recurring revenue from subscription services also rose by 30% to exceed $1 billion for the first time.
In addition, the company reported remaining performance obligations of $1.6 billion, up 26% from a year earlier. RPO represents future obligations arising from contracts with customers, or the amount of cash the company is owed that has not yet been invoiced.
Altogether, Pure Storage ended the quarter with total cash, cash equivalents and marketable securities of just over $1.5 billion.
Analyst Steve McDowell of Moor Insights & Strategy told SiliconANGLE that while every major storage provider delivered revenue growth in the most exact quarter, Pure Storage once again outperformed the market, growing at almost twice the rate of its nearest competitor. He said the company’s success is due to three factors: a healthy market overall, a richer mix of products and strong financial discipline.
“Pure is profiting from smart product bets it’s placed over exact years,” McDowell explained. “Pure has one of the most modern all-flash portfolios in the industry and customers are responding to that. Its new high-end FlashArray XL is beating expectations, while its entry-level QLC-based products continue to sell very well.”
In addition, Pure Storage’s bet on Portworx, a data management platform for Kubernetes-based applications, is also paying off handsomely for the company, McDowell said. The company’s subscription revenue, which includes Portworx, now accounts for almost 30% of its overall business.
“I expect Pure will continue to do well, at least in the near- to mid-term,” the analyst continued. “Flash prices are way down across the industry, but I anticipate that Pure will take advantage of the glut in NAND flash to leverage its position as one of the only QLC-based flash vendors. I also believe it will further expand its market into traditional hard-disk near-line storage. Its competitors really can’t follow them there.”
Looking to the fourth quarter, Pure Storage is eyeing revenue of $810 million, just below Wall Street’s forecast of $813.3 million. For the full year, it’s forecasting total revenue of $2.75 billion, which is in line with the analyst’s consensus estimate.
Nutanix delivered impressive results too, with first-quarter earnings before certain costs coming to three cents per share, well ahead of Wall Street’s forecast of a 12-cent loss. Revenue for the period rose 15%, to $433.6 million, comfortably ahead of the $413.1 million consensus estimate. All told, Nutanix posted a net loss of $99.1 million, which was a big improvement on the $419.9 million loss it delivered one year earlier.
While Pure Storage is laser-focused on storage arrays, Nutanix sells a software-defined hyperconverged infrastructure or HCI stack that integrates compute, storage and networking components into a single appliance or cloud service.
Although it still sells physical gear, Nutanix has attempted to shift away from its hardware roots, putting more focus on its “hyperconvergence” software that can run on third-party servers and systems. At the same time, the company has been urging customers to adopt its new subscription model.
Nutanix President and CEO Rajiv Ramaswami (pictured, adjacent) said the company’s solid performance, amid an uncertain macro backdrop, reflects the value that customers see in the Nutanix Cloud Platform and its subscription-based business model. “We also made important progress towards realizing our hybrid multicloud vision with the general availability of Nutanix Cloud Clusters (NC2) on Microsoft Azure and enhancements to our platform to accelerate the adoption of Kubernetes at scale in the enterprise,” he said.
Like Pure Storage, Nutanix reeled off a list of impressive numbers, saying its annual contract value billings rose 27%, to $231.9 million. It also reported ARR of $1.28 billion, up 34% from a year ago. It ended the quarter with free cash flow of $45.8 million.
McDowell said Nutanix caught everyone by surprise with its top-line and bottom-line earnings beat and that there are several reasons why. “Nutanix is selling one of the industry’s best stacks for managing hybrid cloud infrastructure, and its products are resonating well with enterprise IT,” McDowell explained. “It’s also placing strong bets on the public cloud. While on-premises IT spending is down, cloud spending continues to grow and that’s good news for Nutanix.”
Nutanix is also doing very well on the customer acquisition front and landed some important deals that contributed to its success in the quarter. Its new customers included a major federal agency and a large colocation provider. “It’s these kinds of deals that can help take a good quarter and transform it into a great quarter, and that’s what happened here with Nutanix,” McDowell said.
Finally, the analyst said, Nutanix is no doubt benefiting from the ongoing uncertainty around the impact of Broadcom Inc.’s pending acquisition of VMware Inc. The latter company is a major rival to Nutanix, and McDowell said that a lot of customers are skittish about continuing their investments in it. This plays into Nutanix’s hands, McDowell said, because it’s offerings are the natural alternative to VMware’s for many customers.
“Beyond growing its revenue, Nutanix is managing its bottom-line very well,” McDowell added. “This is an organization that’s demonstrating good fiscal control. That’s exactly what’s needed in a market where IT spending overall is shaky.”
Nutanix offered a strong forecast too. For the current quarter ending in January, the company expects to deliver revenue of between $460 million and $470 million, well ahead of Wall Street’s target of $450.7 million. For fiscal 2023 as a whole, Nutanix said it expects revenue of between $1.77 billion and $1.78 billion, which is in line with Wall Street’s consensus estimate of $1.78 billion.
In the after-hours trading session, Pure Storage’s stock chalked up a 2% gain, while Nutanix’s shares dipped by less than a percentage point.