VMWare (NYSE:VMW) has an interesting market niche and an interesting backstory. The company started in 1998, but was acquired by the massive data storage company EMC in 2004. The combination meant there was now one company that could manage huge amounts of data and could also store it and allow its customers to manipulate late as they saw fit.
As the concept of virtualization of servers became a reality, it transformed how data was stored. Virtualization means you can use a server to create virtual servers, which adds to company’s ability to store and categorize its data without constantly buying more servers.
Remember in the early 2000s, the cloud was more concept than a real product in the market. Big companies like Amazon.com (NASDAQ:AMZN) and Alphabet (NASADQ:GOOG, NASDAQ:GOOGL) had clouds for their data but they were still trying to figure out how to make it into a revenue model.
Bandwidth back then was still hard to come by and creating massive clouds for organizations was still a hardware challenge. Business was still good, since most firms were adopting virtualization software for their data centers.
In 2015, Michael Dell — of Dell Technologies (NYSE:DELL) — bought EMC and rebranded the new Dell division VMWare. And to this day, DELL remains the majority stockholder.
But by this time, the cloud was a fully accepted way to manage and store data. All the big trends — big data, mobility, bandwidth and cloud computing — hit an inflection point and all firms from enterprise level to small business were jumping on board.
VMWare became a facilitator for its clients to create “hybrid clouds” where some data was stored at a proprietary data warehouse and some was stored in the cloud. All the information could pass through both.
VMW then landed a deal with Amazon Web Services (AWS), the largest cloud player in the world. AWS is the revenue engine that powers almost all of AMZN’s other businesses. It represents about 80% of the revenue generated for the entire company. This relationship has certainly helped VMW stock and will continue to be a strong part of its business.
As you can see, VMWare has built itself into a very dynamic spot in the tech infrastructure and has very solid links with some of the top organizations in the world.
And VMW isn’t just about potential; it also delivers. In its most recent quarter, it beat expectations on earnings and revenue and looks to be headed for another strong year.
This is why VMW stock is up 47% from its 2019 lows, even with all the red in the markets lately. But some people talk about how expensive it is, and that seems odd. With that kind of performance, its trailing price-to-earnings ratio is around 33, under its growth.
What’s more, VMW just announced late last month that it will be partnering with Microsoft (NASDAQ:MSFT) Azure cloud in the same it partnered with AWS. That means it’s now a strategic partner of both the No. 1 and No. 2 cloud computing firms in the world.
It’s no surprise that my Portfolio Grader gives VMW an A rating, even now.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
