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VMware's Stock Comes Back to Earth

Very interesting news to see that VMware's stock price is back down to its post-IPO levels. The company had ridden the coaster to the very top, and has now plummeted down the other side.

My quick take: this is much ado about nothing. VMware's stock has been wildly overvalued since the IPO, and has now returned to the level at which it should be. Virtualization, while I'm quite sure is the coming thing, is still in its infancy. Witness the fact that most companies still use one facet of virtualization: server (also called hardware) virtualization for consolidation purposes. That functionality alone is not enough to continue to propel a company into the outer stratoshpere (to quote the Wonderful Wizard of Oz).

Remember one other thing, as well: Even at its post-IPO levels, the stock is still very strong. It's not exactly at Netscape levels. That IPO was sensational, and for the stock to remain there means that it's quite healthy.

Business is slowly moving into other areas, like storage virtualization, disaster recovery and network infrastructure. But VMware doesn't have a name in those areas, although they're starting to move in that direction. Thus, I'd expect their stock to start moving steadily back up, as their new offerings begin to impact the industry.

Microsoft's Hyper-V release probably has something to do with it, as well as more competition from other vendors like Citrix, Virtual Iron, Sun, Oracle, Red Hat, IBM, and all the interesting third-party developers out there. But, mostly, I think it's just the rebound we should have expected all along. In other words, I wouldn't be cashing in my shares if I held stock in VMware (and I don't own stock in VMware, or any other companies, in the interests of full disclosure.)

Posted by Keith Ward on 03/14/2008 at 12:48 PM


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