The virtualization software made by VMware (NYSE: VMW) and competitors like Microsoft, Virtual Iron, and XenSource is all about hiding the details: it can make a single computer server run multiple applications on multiple operating systems, or it can make multiple computer servers look like a single server running a single application. How many machines were involved in a given computation? In a virtualized IT environment, the user doesn’t have to know or care.
And apparently, investors don’t feel they have to know much about the actual size of the virtualization market in order to get on the VMware bandwagon. No one we know has an entirely satisfying explanation for the seemingly unstoppable ascent of VMware’s stock, which crossed the $100 threshold for the first time on Tuesday and increased to $113 Thursday before settling back down into the $104 range in mid-day trading today. (The stock debuted on August 14 at $50, which was already a big jump over the initial offering price of $29.) All that’s clear is that many investors believe VMware’s contention that it’s in the leading position to sell virtualization to the thousands of organizations that depend on expensive enterprise servers, while other investors are simply happy to ride the upward momentum created by that belief.
We wondered back in mid-August why VMware’s sudden value wasn’t being reflected in its parent company, Hopkinton-based EMC’s own stock price, which was around $19. Since then EMC has started to inch up, reaching a six-year-high of $23.72 on Thursday. And now it seems that growing number of investors are buying EMC as a cheap way to ride VMware’s coattails. Indeed, EMC stock has been trading more and more briskly as the week has progressed; some 105 million shares traded hands on Thursday, up from 27 million on Monday.
But ultimately EMC is still not keeping pace with its subsidiary. VMware’s market capitalization is so high that it’s now approaching that of EMC itself—$41 billion, compared to EMC’s $47 billion. And EMC still owns 90 percent of VMware.
