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Why Nutanix Stock Jumped Today

By Jeremy Bowman – Jul 17, 2020 at 1:22PM

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Shares of the cloud-based data storage specialist rose as it was named as a potential acquisition target.

What happened

Shares of Nutanix (NTNX 2.89%) were climbing today after the tech publication The Information named the hyperconvergence infrastructure specialist as a potential acquisition target and cited Alphabet as a possible buyer, among others.

As a result, Nutanix shares were up 12.5% as of 12:59 p.m. EDT.

A digital image of a cloud

Image source: Getty Images.

So what

Declaring that "the season for M&A may be upon us," The Information noted a number of tech acquisitions that had already taken place, including Uber's buyout of Postmates, Just Eat Takeaway's acquisition of Grubhub, and E.W. Scripps Company's decision to sell Stitcher, and suggested several other possibilities, including a deal for Nutanix.

The article noted Nutanix shares have struggled in recent years as investors seem to have given up on its growth potential and its ability to challenge VMware in cloud storage software. But its low stock price and valuation around $4.5 billion after today's gains could make it appealing to a buyer. The Information sees Nutanix's strength in the hybrid cloud as a potential asset for Google, as it steps up its own cloud services division to compete with Amazon and Microsoft, and it said Hewlett Packard Enterprise and Cisco could make a play for Nutanix, as both offered to buy the company before it went public. HPE also formed a partnership with Nutanix last year.

Now what

It's rare to see a stock spike double digits on the mere suggestion of a buyout as there is no indication that Nutanix is seeking an acquirer or that it has held talks about a potential sale.

Still, investors are hungry for good news about the stock as it's still down sharply from its pre-pandemic levels. Its growth potential seems to be underappreciated as the company is still transitioning from being a hardware business to selling cloud software subscriptions. The potential for an acquisition should at the very least put on a floor on the stock, even if it doesn't come to fruition.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon and Nutanix. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. The Motley Fool recommends Nutanix, Uber Technologies, and VMware and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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