The Software Company Collecting Broadcom's Unhappy Customers

When Broadcom bought VMware and rewrote its pricing, it handed a rival the biggest customer opening in a decade. That rival added over 3,000 new customers last year, grew recurring revenue 16%, and is converting that shift into close to $1 billion a year in free cash flow.

What The Financials Are Signaling

Cash generation is the real story

Operating cash flow was $916.7 million in fiscal 2026, and capital spending was $76.0 million, leaving free cash flow (FCF, the cash left after investment) of $840.7 million, up from $750.2 million a year earlier.

That is about 29% of revenue, and it gives you a business that funds its own growth. For fiscal 2027, management guided to FCF of $850 million to $950 million.

Profitability is stepping up

Non-GAAP operating margin reached 23.7% in fiscal 2026, up from 21.1%, and hit 26.2% in the fourth quarter. GAAP operating income rose to $274.0 million from $172.5 million.

The fiscal 2027 outlook calls for revenue of $3.18 billion to $3.23 billion and a non-GAAP operating margin of 24% to 25%, so you are getting a company that expects to grow and get more profitable at the same time.

Cash is going back to you

Nutanix spent $483.5 million on stock buybacks in fiscal 2026, up from $307.9 million the year before, and ended July with $777.3 million in cash and equivalents.

Buybacks of that size keep the share count from creeping higher as the company pays employees in stock, which protects your slice of the business.

The Valuation Problem You Should Not Ignore

The headline P/E is misleading

Finance sites show Nutanix at about 13 times trailing earnings, but that number is inflated by a one-time tax benefit.

GAAP net income was $1.51 billion in fiscal 2026 on just $274.0 million of operating income, because the company released a tax valuation allowance (an accounting reserve against past losses it now expects to use). Ignore that multiple.

Price it on cash flow instead

At roughly $20 billion in market value, you are paying about 22 times the midpoint of fiscal 2027 FCF guidance.

That is a fair price for a software business growing recurring revenue in the mid-teens with expanding margins. It is not a bargain, which is why the migration has to keep showing up in the numbers.

What Needs To Happen Next

ARR growth has to hold in the mid-teens

ARR is the cleanest read on whether customers are actually switching. Growth near 16% says the migration is on track. A slide toward 10% would tell you the VMware opportunity is getting smaller or slower.

Big migrations have to start on time

Last November, Nutanix cut its fiscal 2026 revenue outlook because large VMware customers signed deals with start dates pushed into later quarters. The bookings were real, but the revenue arrived later. You want to see fewer of those timing surprises in fiscal 2027.

Partners have to deliver real volume

Dell, Everpure, Lenovo, and Supermicro all pair their hardware with Nutanix now. Over the next few quarters, you want management to show that partner-sourced deals are a growing share of new business, because that is the cheapest way for Nutanix to keep adding thousands of customers a year.

The Risks You Should Take Seriously

Migrations take longer than anyone wants

Pulling deeply embedded VMware setups out of a large company is hard work, and that is exactly what caused the outlook cut last year. If customers keep delaying, revenue growth lags the bookings and the stock gets punished for timing, and you sit through the drawdown.

Broadcom can fight back on price

Broadcom does not have to keep raising prices. If it offers deep discounts to hold on to customers at renewal, some companies will simply stay put, and the pool of switchers shrinks.

The stock already ran

Shares have more than doubled since April and sit near their 52-week high. A good business can still drop 20% to 30% on one cautious outlook, as Nutanix showed last year.

How I'd Frame A Position

Start with a half position

If you do not own Nutanix, buy half a position now and hold the rest in cash. The stock is near its highs, so leave yourself room to add if the market hands you a pullback on a timing issue rather than a real change in demand.

Add on proof, not on hope

Add the second half once you see ARR growth holding in the mid-teens and free cash flow tracking toward the guided range. If you already own it, hold, and use the Setup Scorecard below for your levels.

Bottom Line

Nutanix is the most direct way to own the exit from VMware, a structural shift that plays out over years of renewals, not over one report.

The company is growing recurring revenue 16%, generating close to $1 billion of free cash flow, and making it easier to switch with every new storage and hardware partner. You are buying the trend, not a single report.

Action Recap

✅ What's working: 16% ARR growth, over 3,000 new customers, $840.7 million in free cash flow, and support for Dell, NetApp, and Everpure arrays

✅ What to watch: ARR growth, start dates on large VMware migrations, partner-sourced deals, and progress toward $850 million to $950 million in FCF

⚠️ Big risk: slow migrations or Broadcom price cuts that shrink the pool of switchers

🧭 Best mindset: Start with a half position. Add only after ARR and cash flow confirm the trend.

Setup Scorecard

Entry Zone: $66 to $74

Target: $90 over the next 12 months

Stop Loss: Reassess below $58

Catalyst Timeline: Ongoing VMware renewal cycle through 2027, partner launches with Dell, Everpure, and Supermicro, and fiscal first quarter results in late November.

Confidence Level: Medium. The migration is real, and cash flow is strong, but the stock sits near its highs and deal timing has slipped before.

That's our coverage for today; thanks for reading! Reply to this email with feedback or any tech stocks you want me to check out.

Best Regards,
—Noah Zelvis
Tech Stock Insider