Nutanix, Inc. Q2 FY2026 Earnings Call

Good day, and thank you for standing by. Welcome to the Nutanix Q2 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rich Valera, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to today's conference call to discuss second quarter fiscal year 2026 financial results. Joining me today are Rajiv Ramaswami, Nutanix' CEO; and Rukmini Sivaraman, Nutanix' CFO. After the market closed today, Nutanix issued a press release announcing second quarter fiscal year 2026 financial results. If you'd like to read the release, please visit the Press Releases section of our IR website. During today's call, management will make forward-looking statements, including financial guidance. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements. For a more detailed description of these and other risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q as well as our earnings press release issued today. These forward-looking statements apply as of today, and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as predictions of future events. Please note, unless otherwise specifically referenced, all financial measures we use on today's call, except for revenue, are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Nutanix will be participating in the Morgan Stanley TMT Conference on Monday, March 2, in San Francisco, and we will be holding our Investor Day in conjunction with our .NEXT user conference on Tuesday, April 7, in Chicago. We hope to see you at these events. Finally, our third quarter fiscal 2026 quiet period will begin on Friday, April 17. And with that, I'll turn the call over to Rajiv.

Thank you, Rich, and good afternoon, everyone. In our second quarter, we continue to see healthy demand for our solutions as reflected in our strong bookings and outperformance versus our guided metrics. We see this demand driven by businesses looking to modernize their IT footprints, adopt hybrid cloud operating models, and deploy cloud-native applications, including AI. I'm excited to announce our strategic partnership with AMD, which focuses on the growth opportunity in agentic AI. This multiyear collaboration is focused on development and marketing of a Nutanix-powered agentic AI platform for enterprises and service providers built on AMD accelerated compute infrastructure. As part of the agreement, AMD will make a strategic investment of $150 million in Nutanix common stock and fund up to $100 million for R&D and go-to-market for the combined solutions. We look forward to delivering the first jointly developed platform from this partnership to our customers in late 2026. More broadly, we see AI as driving a whole new set of new enterprise inferencing and agentic applications for which we are in the early innings. Nutanix provides the ideal platform to run them efficiently and securely on the hardware of their choice across any location, enterprise data centers, edges, or cloud service providers. We see this as a significant long-term growth opportunity for us. Moving to our results. In our second quarter, we delivered quarterly revenue of $723 million, above our guidance range, grew our ARR 16% year-over-year to $2.36 billion, and saw solid free cash flow generation. We also added over 1,000 new customers, representing our strongest quarterly new logo additions in 8 years. Looking ahead, we continue to operate in a dynamic environment, and supply chain challenges, which were not a meaningful factor in our first fiscal quarter, became much more acute subsequent to our last earnings call. Specifically, there have been well-documented shortages of memory and resulting increases in memory prices as well as shortages of CPUs. This is driving higher prices, and lengthening lead times for servers. Thus far, longer lead times largely driven by lack of CPU availability have been a significantly bigger challenge for us than pricing. Nutanix' focus on customer choice across multiple vectors should help to mitigate the impact of supply chain challenges on our business. These options include choice of server platform from multiple providers, choice of running in multiple public clouds with our Nutanix Cloud Clusters or NC2, our support for selected external storage platforms where there is typically no hardware change required; and finally, support for software swaps on existing hyperconverged hardware. We have been working with our customers on these options to help them better manage the current supply chain dynamics in the server market and maintain their deployment timelines. However, we expect that the longer lead times our customers are seeing for servers will have some impact on the timing of our near-term revenue and free cash flow generated from our land and expand business. We have factored this anticipated impact into our updated outlook. Rukmini will provide more details on these changes in her comments. But there are a couple of key points I'd like to make. First, we believe the fundamentals of our business are strong; second, bookings growth expectations for the full fiscal year are higher than prior expectations, but the timing of the conversion of some of these bookings to revenue and free cash flow is expected to be delayed by the availability of third-party servers; and finally, we see this solely as a timing issue, and the amount of revenue and free cash flow we expect to recognize over time from business booked in FY '26 remains unchanged. In Q2, we continue to see success in the marketplace with our cloud platform. Our most notable wins, a few of which I'll highlight, demonstrate the appeal of our solution to businesses that are looking to modernize their IT footprints, deploy modern apps and AI, and adopt hybrid multi-cloud operating models. One of our largest new logo wins in the quarter was with a North American headquartered Global 2000 financial services provider that is one of the largest asset managers in the world. This new customer was looking for an alternative to their incumbent infrastructure provider for a portion of their estate following a substantial price increase. They chose the Nutanix Cloud Platform, including Nutanix Cloud Manager to run some of their mission-critical applications, appreciating its common management interface, superior ease of use, simple one-click upgrades, and the public cloud optionality provided by our NC2 capability. Another significant new logo win was with a North American-based provider of healthcare services. This new customer approached Nutanix initially looking for an on-prem alternative to their existing infrastructure environment. However, they ultimately also decided to leverage our NC2 on AWS to expedite the migration of a portion of their estate into the public cloud before their upcoming renewal with their incumbent provider. We see this win as demonstrating the flexibility of our cloud platform in enabling customers to quickly migrate and operate in the environment of their choice, including public cloud. Finally, a large full-stack expansion win with an EMEA-based IT services provider reflected ongoing progress with our customers adopting the Nutanix Cloud Platform to deploy cloud native and AI applications. This customer is using Nutanix Enterprise AI and Nutanix Kubernetes Platform, or NKP, running on our cloud platform to deploy additional AI use cases in the areas of automation and optimization. They are also expanding their use of Nutanix Database Service for database automation and Nutanix Unified Storage for managing their unstructured data. During the second quarter, we continued to make progress on our initiative to support external storage with our platform, including multiple meaningful wins with our solutions supporting Dell's PowerFlex. We also delivered general availability of our solutions supporting EverPure, formerly Pure Storage, and saw our first wins for this new offering. In Q2, we also introduced several enhancements to the Nutanix Cloud Platform designed to strengthen security and drive operational resilience across increasingly distributed environments. These updates are a response to the growing demand we see from organizations that require the flexibility to run their entire estate, including traditional cloud-native and AI workloads on a single consistent platform. This is particularly relevant for customers operating in highly regulated sectors, including those looking to deploy sovereign clouds and fully disconnected sites. In closing, we believe our business performed solidly in the second quarter, including strong bookings, strong new logo additions, and solid free cash flow performance. While we have updated our outlook to reflect the expected near-term impact of supply chain challenges on our business, these changes relate solely to timing of revenue and free cash flow. I believe our partnership with AMD meaningfully expands our opportunity in the enterprise AI market. Our opportunities with AI, modern applications, hybrid multi-cloud, and support for external storage provide us with a strong foundation for multiyear growth. And with that, I'll hand it over to Rukmini Sivaraman.

Thank you, Rajiv, and thank you, everyone, for joining us today. I will first discuss our Q2 '26 results, followed by an update on Q3 '26 and full fiscal year 2026. In Q2, we reported results that were above the high end of the range for all guided metrics. In Q2, we reported quarterly revenue of $723 million, higher than the guided range of $705 million to $715 million. ARR at the end of Q2 was $2.356 billion, representing year-over-year growth of 16%. NRR, or net dollar-based retention rate at the end of Q2 was 107%. Land and expand bookings in Q2 were higher than our expectations, which we believe is partially due to customers anticipating supply-related shortages and price increases for server hardware from our partners. As we move through the latter half of Q2, we began to see that the challenging supply environment for CPUs, memory, storage, and other components is delaying our customers' ability to procure servers from our hardware partners in order to run our software. We did not see this as a meaningful driver of our results in our fiscal Q1 as mentioned in our last earnings call. But later in Q2, we did start to see it become more pronounced to a greater extent than anticipated and expect it to continue through the rest of the fiscal year. Thus far, longer lead times, largely driven by lack of CPU availability, have been a significantly bigger challenge for us than pricing. Revenue in Q2 saw a headwind from these factors, but was more than offset by higher-than-expected TCV bookings that grew in the mid-teens percent and lower-than-expected percentage of land and expand bookings with future start dates. In Q2, average contract duration was 3.1 years, largely consistent with our expectations. Non-GAAP gross margin in Q2 was 88.6%. Non-GAAP operating margin in Q2 was 26.2%, higher than our guided range of 20.5% to 21.5% due to lower operating expenses related to the timing of hiring, among other factors, and higher revenue than expected. Non-GAAP net income in Q2 was $164 million or fully diluted EPS of $0.56 per share based on fully diluted weighted average shares outstanding of approximately 292 million shares. The fully diluted weighted average share count incorporates the impact of the $300 million accelerated share repurchase transaction that was completed in Q2. GAAP net income and fully diluted GAAP EPS in Q2 were $103 million and $0.36 per share, respectively. Free cash flow in Q2 was $191 million, representing a free cash flow margin of 26%. Moving to the balance sheet, we ended Q2 with cash and cash equivalents and short-term investments of $1.874 billion, down from $2.062 billion at the end of Q1. Moving to capital allocation, in Q2, we repurchased $333 million worth of common stock under our existing share repurchase authorization. We completed a $300 million accelerated share repurchase transaction and the remaining approximately $33 million worth of stock was repurchased through our ongoing share repurchase program. We also used about $48 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. All of these helped to manage share dilution. Moving to Q3 guidance, our guidance for Q3 fiscal '26 is as follows: revenue of $680 million to $690 million, non-GAAP operating margin of 16% to 17%, fully diluted weighted average shares outstanding of approximately 288 million shares. Moving to the full year, our updated guidance for fiscal year '26 is as follows: revenue of $2.8 billion to $2.84 billion, non-GAAP operating margin of 21% to 22%, the same as our prior guide despite the lower revenue guide, and free cash flow of $745 million to $775 million, representing a free cash flow margin of 27% at the midpoint. I will now provide some additional context regarding our fiscal year '26 guidance. First, as Rajiv mentioned, while we continue to operate in a dynamic environment, our bookings expectations for the full year are higher relative to our last earnings call, indicating continued strong and growing demand for our solutions. Second, the challenging supply environment I described earlier is, however, delaying our customers' ability to procure servers from our hardware partners in order to run our software. For our orders that are linked to the shipment of server hardware, which are a minority of our bookings, we can only recognize software revenue and collect cash alongside the shipment. These include bookings that are sold through our OEM partners, such as Cisco, Dell, or Lenovo, and our integrated offering partnered with Supermicro. As a result of this, we expect some revenue and free cash flow to be shifted out from this fiscal year. Both the Q3 and updated full year guidance are impacted by these dynamics. This is solely timing related and does not change the overall revenue and cash flow expected to be recognized over time from bookings in fiscal year '26. Absent this worsening supply chain dynamic, we would have been in a position to raise all guided metrics for fiscal year '26 following our good Q2 bookings performance. We expect TCV bookings growth to exceed revenue growth for fiscal year '26. Third, we are doing several things to actively manage through these dynamics. A, as Rajiv said, we provide customers with options, including choice of server platform, choice of running in public clouds with our NC2 solution; our support for selected external storage platforms, where there is typically no hardware change required; and finally, support for software swaps on existing hyperconverged hardware. B, we are providing selected tools and promotions for our customers who are ready to make a decision to partner with Nutanix and lock in their server prices while facing uncertainty about server lead time. These include options around licensing start dates and increased flexibility to purchase the software separately from the server. We expect a higher percent of bookings in the second half of the year with future start dates than previously assumed. Fourth, we are maintaining our full year operating margin guidance as we invest for continued growth while maintaining our focus on efficiencies and expanding margins over time. Fifth and finally, a note on the seasonality of free cash flow. We expect our free cash flow in the second half to be more weighted towards Q4 rather than Q3 based on our current visibility into the supply chain dynamic outlined previously. In closing, we believe the underlying fundamental drivers of our business remain strong. Bookings expectations for the year are higher than before. Revenue and free cash flow realized from these bookings are coming in later. With that, operator, please open the line for questions.

Our first question will be from Radi Sultan of UBS.

Starting with Rajiv, just on the VMware replacements, could you take a step back for us and like Broadcom has been making a lot of changes like reworking the hyperscaler agreements for VMware on cloud, ramping up audits, things like that. Just taking a step back, how do you think about the magnitude of the VMware replacement opportunity versus 12 months ago? And maybe what have been the biggest drivers of that change?

Radi, Rajiv here. I don't think anything has really changed from an opportunity perspective. You can see that we are still continuing to add new customers at a healthy clip. We added over 1,000 customers this last quarter. Our AHV percentage, which is our hypervisor adoption, has hit an all-time high. To your point around the cloud partners, you've seen that we've extended our partnership with AWS post this Broadcom acquisition, and we're seeing some good traction. We talked about some examples on NC2 and how that's being used in the public cloud. And then we continue to add more external storage support. You see the EverPure solution is now in the market. PowerFlex has been in the market and there's more public cloud options now with Google coming on. So all of these make migrations easier, right, from VMware. So we don't think anything has changed from an opportunity perspective. I've always said that this is a multiyear journey, and it will continue to be a multiyear journey for us.

Got it. Crystal clear. And then just a follow-up for Rukmini. As you think about the supply chain constraints, the implied Q4 guide does imply a pretty steep upsell. What gives you confidence in that? If you could just speak to your level of visibility, what leading indicators should we be looking at to give us confidence in underwriting that Q4 upsell?

Yes, I would mention a few points. First, Q4 has historically been a very strong quarter for us as it marks the end of the fiscal year. Consequently, our sales team is highly motivated to maximize their performance in this period. Additionally, we are providing guidance for Q3 and, by extension, Q4 based on the current supply conditions in the market and our expectations for how these will impact our revenue. Another notable point is that our remaining performance obligations showed significant growth at the end of Q2, increasing by 24%. This is another metric to consider regarding our performance obligations and current remaining performance obligations. These are a few key aspects to highlight regarding the seasonality from Q3 to Q4.

And our next question will be coming from the line of James Fish of Piper Sandler.

Rukmini, you probably were teeing that up for me with the RPO comment there. But I did want to touch on that. Help me with this dynamic where you guys have mid-teens TCV bookings, but RPO bookings growing against that really tough 34% comp last year. That implies about 10 points coming from sort of off-balance sheet bookings that is a materially higher amount than what you guys have historically suggested. Or what am I missing here that you're starting to see more off-balance sheet bookings?

Jim, yes, so as I said, we saw strong year-over-year RPO bookings growth of 24%. The exclusion of cancelable backlog from our reported RPO has a meaningful impact on the RPO bookings calculation and year-over-year growth rate despite the fact that that cancelable backlog remains a very small portion relative to our total RPO number. It's in the low single-digit percent as a percent of the total RPO. Now including that cancelable backlog number, which historically has very rarely been canceled, in the RPO bookings calculation, that results in a mid-teens percent year-over-year growth rate aligned with the overall TCV bookings growth rate that I alluded to in my prepared remarks.

Okay. And Rajiv, for you, I guess you’re talking about a really good pipeline of conversion opportunity. But how are customers balancing the outlook of having to renew again with that incumbent and delaying their hardware purchasing versus the savings they get by deploying the hardware now and purchasing Nutanix?

Yes, that's a great question, Jim. We are seeing a mix of different situations among our customers. Some have proactively ordered hardware because they anticipate price increases and are moving forward with migrations. Others are reassessing their needs and realize they can utilize their existing external storage with our support, avoiding the need to replace hardware, which is beneficial for us. When customers migrate from VMware, it usually aligns with their hardware refresh cycles. If a hardware refresh is necessary, we provide significant total cost of ownership benefits compared to our competitors, which is driving the migration. However, if a customer opts to extend the life of their hardware due to the current pricing of new equipment, we still offer the possibility for software migration, as we now support a wider array of third-party storage and can also work with existing HCI hardware that runs VMware. We provide our customers with all these options. Additionally, they can choose to migrate to the public cloud if they wish. In fact, we mentioned one such customer during the call. Having these choices helps alleviate some of the concerns related to hardware migration costs.

And our next question will be coming from Sanjit Singh of Morgan Stanley.

Just some follow-ups on some of the headwinds in terms of revenue. Rukmini, last quarter, we talked about deferred start dates and that higher mix of deferred start dates. That doesn't seem to be the sort of near-term. It seems like that maybe came in line with your expectations and it's more of the supply constraints around CPU. I wanted to make sure that I understand the dynamics happening right now. And then it seems like the longer term or the midterm strategy here is to keep the bookings momentum alive by giving customers more flexibility when it comes to licensing and start dates. Is that how I should be thinking about it in terms of how you plan to navigate kind of the near-term turbulence around the long run on revenue of Nutanix?

Yes. Sanjit, let me perhaps first lay out sort of how we take our software to market, and then I'll address your question on future start dates and flexibility and so on. So we have two types of orders for our software, right? One go-to-market motion, which typically accounts for the majority of our ACV bookings, involves software not linked to any hardware delivery, which we often refer to as software only. Now for the software-only deals, we typically will bill a customer at the time the purchase order is made, and revenue is recognized at the time of the license start date, as we've talked about before, and that's what you're alluding to. Now the other type of order involves software that is tied to the delivery of the associated server. Now this includes business sold through our OEM partners as well as integrated offerings such as we offer with Supermicro. And in that case, where the software is tied to hardware delivery, revenue recognition is also tied to that delivery of the hardware. So now to your question on future start dates, you are correct that the percent of orders and future start dates in Q2 was lower than we had expected and was lower than what we saw in Q1. That percent or that mix depends on a variety of factors, right? It includes customer migration timelines, the timeline to procure hardware as we’re talking about now, and our approval processes around that. So that number can move around from quarter to quarter. Given the recent supply chain dynamics and ongoing migrations, we have factored in a higher percent of orders than we had previously to come in with future start dates going into the second half of the forecast.

That's very clear, Rukmini. I appreciate the color there. Let me talk a little bit about the partnership with AMD. So Rajiv, maybe in terms of the timeline of having a solution out to the market, maybe get your viewpoint on that. It sounds like it's going to be later this year. And then in terms of which customer segments within the Nutanix or AMD customer base will be most interested in the joint solution? Is it sort of particular industries, higher segments like large enterprise? I just want to get a profile of who's going to be the most viable as potential joint customers of the partnership.

Yes. First of all, the target, just to be clear, is we are building a platform together that supports essentially inferencing and agentic applications, right? So this would be a full stack platform on top of which people could use run models and build these multi-agent applications or even simpler inferencing applications. The target customer base, to your question, really are enterprise customers, okay? If you were to say within that enterprise customer base, it would be typically customers in more regulated industries, customers who care about sovereignty wanting to run their AI close to where their data is located. So it could also mean people who are running AI applications at the edge. So if you were to look at this set of customer base, right, what it translates into is people who care about protecting their data, running it locally, running it inside their data centers for the most part, and also some subset of these customers are going to consume them from service providers. We have a lot of service providers these days who are also offering GPU as a service. So that would be the second way of serving the same end customer being the enterprise. So in short, targeting enterprise use cases for these agentic AI applications, mostly regulated industries to start with, but also people are interested in being service providers delivering to these enterprises. As you said, the first solution out of this will be delivered by the end of this calendar year, and we are excited about the long-term potential for this partnership.

And our next question will be coming from the line of Wamsi Mohan of Bank of America.

It’s Ruplu filling in for Wamsi. I've got two questions today, both for Rukmini. Just looking at the margin dynamics, the fiscal quarter you reported was very strong, stronger than expected. You're guiding fiscal 3Q operating margins to 16% to 17%, and then the full year unchanged at 21% to 22%. Can you just help us understand the dynamics impacting fiscal 3Q margins? And what's the factors that will help get to the full year 21% to 22%? And the same question on free cash flow. It looks like revenues are down $20 million for the full year, but you're taking down free cash flow down $60 million, but there's also potentially some of the $100 million from AMD, and they're also buying back shares or buying your shares. So can you just give us your thoughts on the cadence of free cash flow, the investments you're making, and how we should model out free cash flow? And I have a follow-up.

Thank you, Ruplu. So on operating margin, I'll start there. Historically, our seasonality around operating margin is that it's higher in Q2 and Q4 and lower in Q1 and Q3 on a relative basis. That's because the revenue roughly follows that pattern as well. And of course, we're investing typically through the year. That also flows in. But it's not unusual for us to have operating margin be higher in Q2 and Q4 relative to Q3, which I think is the dynamic that you're pointing out. I will say that in terms of overall perspective on investment, we still continue to believe there's a large growth opportunity ahead of us. So we're investing for that growth while doing so in a thoughtful way while also working on efficiencies and productivity within the business. That’s on the margin point, Ruplu. And then on free cash flow and your point about revenue versus free cash flow. One thing I'll say is that when you think about the orders described earlier, where orders are linked to the shipment of server hardware, and we said those are a minority of our bookings, we can only recognize software revenue and collect cash alongside the shipment. Typically, we recognize about half of an order's TCV bookings upfront as revenue while we typically collect all of the cash upfront. So you could impact the cash impact on free cash flow to be higher than on revenue, and that is, in fact, what we're expecting. So the change to our free cash flow guidance was largely due to these longer server lead times, which are delaying the timing of when we can bill and collect from customers. That's why the free cash flow guidance change is higher than the revenue change, Ruplu. Those are some of the dynamics around free cash flow and on operating margin.

So Ruplu, you also asked about the AMD piece, right? Do you want to cover the accounting?

Yes. So AMD is choosing to invest $150 million in our common stock, which has no impact on free cash flow because it's not going to be in the operating cash flow section.

Right. But they are also investing $100 million. Is that all this year?

Correct. I will say, look, I think we aren't getting into the specifics of that, Ruplu, but we did say it was a multiyear strategic partnership with AMD, and it's up to $100 million over that period.

Got it. If I can ask a quick follow-up. So you mentioned two delays. One is the delay because of the availability of servers, and then you also, in the commentary, said that there's a higher mix of orders with delayed start dates, which is also growing versus your thought 90 days ago. Can you help us quantify this? I think last quarter, you had said it was about $80 million of revenue that was being pushed out because of future start dates. Can you help us quantify how much is the impact from delayed availability of servers versus orders with later start dates? Like how are each of these impacting revenue recognition?

Yes. So for this quarter's updated guide, I would say the more meaningful change is in the supply chain environment. It is worse than what we had expected 3 months ago. That is a meaningful portion of the change in guidance. As we said on the call, we're also assuming that the second half orders with future start dates, the mix of those orders is also expected to be higher than we had thought. That is also factored in there. But we're not breaking out the quantification, Ruplu, but the significant change was what we saw in the supply chain environment.

Our next question will come from Matthew Martino of Goldman Sachs.

Maybe to start with Rukmini. You mentioned in the prepared remarks that extended lead times have been the bigger headwind and less so server prices. Can you provide us with some color on kind of what you've contemplated around guidance in the back half of the year, whether it's largely extended lead times or potentially lower initial deal sizes on higher server costs, just given the fluctuations out there in memory prices today?

Yes. Matt, in terms of the forecast for the second half, we have factored in delays in availability of servers, right? We factored in based on the visibility we have right now and what we see. But I will say, I think we've said this before, that we are indirectly impacted by this given that it’s our server partners that we rely on, and our customers rely on to procure their hardware. Yes, we factored in some of the delays around server lead times and when we expect those to become available. Now the second point about potentially impact of pricing on our software. As we've said, we continue to see solid demand for our solutions in Q2. We've talked about the bookings growth. As of now, the impact of this higher server price and longer lead times can be mixed, Matt. In some cases, it is accelerating projects, while in other cases, it’s requiring more approvals and lengthening procurement timelines. We are also working with our customers to offer them many options, including choice of server vendor, external storage support, public cloud with NC2 solution, and swapping software on existing hardware. We will continue to emphasize our software value proposition and provide a range of options to customers as we have described. That’s the way we’re approaching this.

Yes. Very clear. And then for you, Rajiv, you guys are offering multiple workarounds. Rukmini just flagged it with NC2, expanded server platform choices, external storage. I'm curious, Rajiv, from your perspective, what's proving most effective for those deals that are staying on track in terms of providing that wider array of options? And in the context of that, the new logo velocity was really strong this quarter. So I'm wondering if Pure Storage was a large contributor to that dynamic?

I think Pure Storage or EverPure is still in the early stages. We secured our first wins this quarter, but I wouldn’t say they were a significant contributor to our new customers. Most of our new customers came from typical VMware migrations onto the HCI platform. External storage is increasing, but it remains a small part of our business. When we consider what is significantly impacting our performance, it's really a mix of these factors. Our ability to run our HCI platform now supports a broader range of configurations and gives customers more options. There was considerable interest this quarter from people evaluating different server vendors for the best pricing and lead times. Our capability to support all of them adds clear value that our customers have definitely utilized. NC2 had a strong quarter as well. More people are turning to public cloud solutions due to challenges in obtaining on-prem servers. They can also use NC2 for cloud migration and potentially revert to on-prem if server availability improves. We’re beginning to see some evidence of that trend. As I mentioned, external storage is another factor, although it is still in its early phases. Nevertheless, we are clearly witnessing increasing traction. I anticipate that as customers start to maximize their existing hardware due to supply constraints, this will become even more vital. It’s not just one thing that is significantly aiding us; it’s the combination of all these elements that helps us navigate the supply situation.

And our next question will be coming from the line of Samik Chatterjee of JPMorgan.

This is MP on behalf of Samik Chatterjee. Firstly, just wanted to double-click on your AMD deal. What is the best way to size up your revenue opportunity here and the go-to-market strategy? Will it be just the attach rate with AMD's inferencing platforms, or will you be able to do independent software sales as well? What is the likelihood of similar future deals? How does the market look?

Good question, MP. Let me address that. First, regarding the revenue, the solution consists of the Nutanix software stack operating on servers that feature AMD's accelerated compute platform. We currently have solutions available in the market utilizing NVIDIA as well. In fact, all our AI solutions are currently running on NVIDIA, and we are now incorporating AMD to offer more options for customers. Our go-to-market strategy involves selling our software, which includes the full stack of our Nutanix Cloud Platform, our Kubernetes platform, and our NAI, which is the Nutanix AI component that integrates with all of this. Our research and development efforts are focused on ensuring that everything works smoothly and efficiently on AMD hardware, specifically their GPU and accelerated compute hardware within the servers. We continue to sell our software as we do now, with an increasing amount landing on platforms equipped with AMD hardware. This is the collaborative approach to go-to-market. AMD provides their hardware solutions and ecosystem, while we offer the software stack, and together we target our enterprise customer base. From a revenue perspective, we anticipate that the solution will be in the market by the end of this year, and we expect to begin observing small revenue streams next calendar year or in the latter half of our fiscal FY '27.

My second one would be around supply constraints. Between CPUs and memory, which are bigger supply constraints in your opinion, currently for server deliveries? When do you expect the supply constraints to ease? Do you expect it to ease within this fiscal year or go beyond this fiscal year?

Both are important factors. Currently, CPUs are the main issue, but if the CPU supply improves, Intel has mentioned they are working to meet demand, which has been significant. We're also introducing more AMD products to help with the situation. Following CPUs, memory will become a challenge. Timing for improvement is uncertain; I don't think it will be short-term as AI spending from major providers is driving this supply issue. It will take time for supply to normalize. While we are somewhat insulated from this, predicting the pace of change is difficult. However, I believe both CPU and memory suppliers are making efforts to increase supply. This is an industry-wide problem, and while I cannot provide a specific timeline, I expect things to normalize over the next couple of years.

And our next question will be coming from Ben Bollin of Cleveland Research Company.

Rajiv, I'm curious about how you think about the mix of revenue or ARR orders that you're getting from AI inference, agentic opportunities today? Essentially, how big is it? What type of growth rate do you think you're seeing from that opportunity? I had a follow-on for Rukmini.

Yes. So Ben, first of all, it was 0, 1.5 years ago. Clearly, you're growing from a very small base, and it is still fairly small for us in the scheme of things because we are in the very early innings of enterprise AI adoption, really early. Our customers today, we talked about one of these customers in the EMEA region, who has now created the shared GPU platform that they are providing to various departments. The use cases today tend to be fairly simple applications, simple inferencing applications, not multi-agent use cases yet. We are in the very early stages of enterprises building these more sophisticated AI applications that they will consume. I look at this and say, over the next 5 to 10 years, there are going to be a whole bunch of new applications that are built in the enterprise. Existing applications will all start incorporating AI, workflows are going to change. There's going to be a whole new set of workloads from our perspective that are including gen AI as part of these applications. We are pretty early in the cycle at this point. Enterprise adoption, as I said, is just starting. They're all starting to use it more, but they haven’t really built a lot of their own custom applications and custom workflows. When that happens, I think this will grow. Short answer to your question, it was 0, 2 years ago, it is small right now, but growing and growing very nicely. The fact that we now have a broad ecosystem that cuts across NVIDIA and AMD, along with more third-party people coming into the mix here, we are very focused on this. Please come to our April conference event where we will talk more about our AI strategy and roadmap. We expect this to be a good long-term driver for us.

Yes. Ben, I’m also interested in your thoughts. When we look at the RPO and booking strength, the appliance pricing is going higher from these vendors, and it's changing by the week or the month. How much of what you're seeing right now would you attribute to customers getting in line because they'd rather put the PO in today, trying to get current prices versus assuming the price may be higher at some point in the future? How do you think about that? We believe that some of our bookings performance in Q2 exceeded expectations due to factors related to customers placing orders earlier than anticipated. This was likely a strategy to avoid potential price increases on servers and to secure access to them. However, it is challenging to quantify the exact impact of this change.

And our next question will be coming from Brandon Nispel of KeyBanc Capital Markets.

I think just one for me. NRR decelerated this quarter, I think, Rukmini, you called out 107%. Could you give us some color in terms of why NRR decelerated? That would be helpful.

Brandon. The first thing I'll say is it’s important to note that the factors outlined last quarter and I'm talking about this quarter as shifting out the recognition of revenue also impacts ARR and NRR, because the dynamics are similar in terms of how we recognize revenue versus when something would show up in ARR and therefore, will also be reflected in NRR. That’s important to keep in mind. Our NRR in Q2 specifically was also impacted by timing delays we saw in some renewals in our U.S. Fed business specifically that was created by some backlog related to the recent government shutdown, and we expect to receive those in Q3. Those are the timing delays from Q2 into Q3. The last two mentioned are ones we've talked about before, but I'll call out the first two as being just things to keep in mind as you look at NRR.

And our next question will be coming from Nehal Chokshi of Northland Capital Markets.

Yes. Congratulations on the good bookings quarter. Talking about bookings, based on the color you provided so far, Rukmini, it sounds like cancelable bookings, while it's still in the single digit of the overall RPO, it is materially more than the total in terms of the year-over-year growth rate. Can you discuss what is behind canceled bookings year-over-year growth being much higher than non-cancelable bookings?

Nehal, the cancelable bookings, like you said, I think this is again referring just for everybody's benefit, a bookings number that folks can calculate based on looking at our revenue in Q2 and adding that to the quarter-over-quarter change in RPO. The way RPO is defined for us, as it is for most companies, includes only orders that are non-cancelable. As I said earlier, we have a small portion. It's in the low single-digit percent of our total RPO that is cancelable. It remains in the low single-digit percent, but it can move around somewhat. That’s why it sometimes distorts these year-over-year growth rates because you're looking at a quarter-over-quarter change in RPO, and we're trying to do a year-over-year calculation in growth rates for bookings. It moves around a little bit. We’ve had some old partners that have some of those clauses, and we’re actually working to make sure those are no longer the case going forward. Over time, we would expect that cancelable number to go down, but it can move around from quarter to quarter.

And this concludes today's program. Thank you for participating. You may now disconnect.