VMware stock hit a speed bump earlier this month after CEO Pat Gelsinger agreed to leave the enterprise software company to take the top job at Intel. Gelsinger is among the most respected executives in the Valley, and his return to Intel—where he previously spent 30 years in various technical roles—was viewed as a brilliant move by Intel board, but a tough loss for VMware.
Gelsinger’s departure raised questions about VMware’s (ticker: VMW) business, in part because it followed other key departures: Rajiv Ramaswami, who had been chief operating officer of products and cloud services, last month was named CEO of Nutanix (NTNX). And Ajay Singh, who had been general manager of the company’s cloud-management business unit, earlier this month was named chief product officer at Pure Storage (PSTG).
On Thursday, KeyBanc Capital analyst Alex Kurtz cut his rating on VMware stock to Sector Weight from Overweight, citing recent survey data that suggest reduced interest in VMware from enterprise IT buyers.
“After considering results from our CIO Survey along with input from our channel discussions and expected budget priorities, we see a more-challenging first half for VMware,” he writes in a research note.
Kurtz writes that he finds VMware has found success with the rollout of its new Project Pacific software platform to manage software containers. But he thinks that the pandemic has slowed the rollout and field training. He adds that “[p]rivate cloud investments are at the lower end of budget priorities as investments are more focused in the near term on collaboration, security and analytics. “In our discussion with CIOs, vendors like VMware remain strategically relevant, but spending on core infrastructure that is often tied to VMware will be held in a more maintenance-like mode until other projects are executed,” he writes.
In the same note—a 65-page review of the infrastructure software market—Kurtz provide a list of his four favorite ideas for 2021: Atlassian (TEAM), Smartsheet (SMAR), Nutanix (NTNX), and RingCentral (RNG). For RingCentral, he raised his price target to $410 from $400.
Here are brief comments on his four picks:
- Atlassian: “We continue to view Atlassian as a best-in-class collaboration platform benefiting from a strong developer ecosystem.”
- Smartsheet: “With project coordination/collaborative-work-management platforms a top investment area as distributed and asynchronous work persists, we see this second-derivative [work from home] play seeing upside potential as [the economy] and IT budgets improve.”
- RingCentral: “A best-in-class software vendor with leading distribution that should continue to consolidate UCaaS [unified communications as a service] share.”
- Nutanix: “After stabilizing execution in the Americas region over the past year and a continued transition to a subscription model, we believe that the bulk of the sales-execution challenges are behind Nutanix and the narrative around the stock can shift to reaccelerating growth and leverage in the model.”
VMware stock is up 0.4% to $133.12 in Thursday afternoon trading.
Write to Eric J. Savitz at [email protected]