On Monday, IBM (NYSE:IBM) reported better-than-expected earnings and raised its guidance for the rest of 2011. With deference to its former CEO, Lou Gerstner, his successor is proving that elephants still can dance. But a big technology company has trouble growing very fast — so perhaps you should consider VMware (NYSE:VMW) instead.

IBM’s earnings grew and it beat expectations. Its net income rose 7% to $3.84 billion, and it reported a 15% increase in earnings per share to $3.28 — six cents higher than expected.

Two big factors are driving IBM’s growth — emerging-markets demand and new products. Countries like China, India, Brazil and a few dozen other emerging nations contributed to 19% growth and now represent nearly a quarter of IBM sales.

Customers also are buying new products from IBM such as business analytics — a tool that let companies find the needle in the haystack of corporate data to pinpoint sales opportunities and cut operating costs.

Meanwhile, VMware — it provides so-called virtualization software that boosts the performance of corporate data storage systems and provides a way for corporations to operate in the “cloud” — is growing very rapidly. On Tuesday after the market closed, VMware reported a 146% rise in net income to $178 million while adjusted EPS of 53 cents beat by three cents the Thomson Reuters analysts’ earnings projection for the quarter.

VMware’s 32% revenue increase to $949 million is due to two factors: rising corporate IT spending and higher revenue per customer. Recently, for example, major VMware customers have signed more early license renewals and bought more add-on products. And VMware is boosting guidance for the fourth quarter — to a range between $1.03 billion and $1.06 billion — ahead of Wall Street’s expected $1.03 billion.

So do these pleasant numbers mean you should invest in both IBM and VMware? I’d be reluctant to invest in either company. Why?

• IBM: Growing and profitable; pricey stock. Revenues for IBM have grown 4.3% in the past 12 months to $106 billion, while net income has jumped 10.5% to $15.6 billion — earning a substantial 14.7% net profit margin. In addition, its price/earnings-to-growth ratio of 1.48 (where a PEG of 1.0 is considered fairly priced) is expensive on a P/E of 15.2 and expected earnings growth of 10.3% to $14.76 in 2012.
• VMWare: Rapidly growing and profitable; expensive stock. VMware’s revenues are up 41% in the past 12 months to $3.5 billion, while net income jumped 81% to $643 million — yielding a net profit margin of 18.4%. Its PEG is a pricey 1.92 on a P/E of 46 and expected earnings growth of 24% to $1.79 in 2012.

If forced to choose one of these stocks, I’d go with VMware because, based on its recent performance — e.g., 81% earnings growth — there is some chance that its 2012 earnings growth forecast could prove to be way too low. If VMware keeps growing at that rate, its P/E will look low to investors.

IBM, on the other hand, is highly unlikely to be able to sustain earnings growth faster than the 15% that would be required to make its stock look reasonably priced. Still, IBM’s financial performance is impressive given its size.

Despite this, investors have driven up IBM 35% in the past year to VMware’s 18%. Thus a decision about whether to invest in either company depends more on what happens in the future than on what they’ve done in the past.

As of this writing, Peter Cohan did not own a position in any of the aforementioned stocks.