the stock prices of tech companies a few years ago, blogging about the state of the market and occasionally posting comparison graphs of the largest fish in the sea. (IBM, Microsoft, Apple, Google, etc.) It occurred to me this year, when I witnessed a healthy increase in the value of one particular stock, that few people who aren’t tech investors have any idea of the relative performance of tech company stocks. So a few months ago I started asking a handful of intelligent professionals, some of whom were executive level officers in tech companies the following question:
Which tech company’s market cap has increased most this year so far?
[If you're not an investor, you may not know what market cap (market capitalization) is. It's the value of the company measured by the total value of the stock it has issued.] In asking this question, I always add “only include companies that have a market cap above $5billion.” Clearly small tech companies can exhibit very fast growth, but larger ones tend not to.
It didn’t surprise me that noone I asked got the right answer. After all, you’d need to be following the tech market reasonably closely to have any possibility of guessing the answer. But it surprised me that nobody I asked named any company that was in the top 5.
One guessed IBM. Another guessed Amazon. Most people guessed Apple. It’s clear why they would. When Apple’s market cap flew past Microsoft’s, it was all over the news. Plus the iPhone was a roaring success world wide and the iPad was selling like ice cold Coke in a heat wave. Nevertheless, Apple never made it into the top 5.
Here is the top 5, listed in reverse order, along with an explanation as to why their share prices headed for the stratosphere.
5. Red Hat: Market Cap Growth 71.95% (NASDAQ RHT)
Red Hat, the commercial hero of the Open Source movement, demonstrates that it’s possible (although it’s by no means easy) to succeed with an Open Source business model. You cannot argue with revenue growth in the 20% area and a market cap of $9 billion. With Red Hat, I believe there are two factors in play. First there is the fact that Linux is clearly thriving in the server market (although it still trails Windows by a long way). Second is that Red Hat has now moved far beyond Linux with the inexorable growth of its JBoss stack and the addition of virtualization (with the Open Source Xen and KVM), data storage technology (Infinispan) and a proposed cloud standard (Deltacloud).
Red Hat presides over a growing open source ecosystem, which is proving more and more important. It’s easy to believe that Red Hat’s success will continue.
4. Informatica: Market Cap Growth 86.90% (NASDAQ: INFA)
Informatica could be described as the gorilla in the Data Integration market. In all probability both IBM and Oracle garner as much if not more revenue from data integration software than Informatica, but Informatica has only one species of fish to fry… and focus in the tech market pays powerful dividends. Informatica is, in effect, defining what the data integration market is and it appears to be reaping the benefits accordingly.
In my view (and there’s no simple way to measure this) the need for data integration is currently growing faster than the market for software which facilitates it. The rise of Informatica in the past year certainly confirms this, but I think it’s a long term trend. If I’m right, Informatica may continue to grow at this kind of pace.
3. VMware: Market Cap Growth 113.98% (NASDAQ: VMW)
VMware is the third tech company that has more than doubled in value in the last 12 months. It’s no secret that every data center of any significant size is running a virtualization project. What has clearly happened this year is that VMware has brushed off the challenge from both Microsoft and Citrix, primarily because it has a far more comprehensive set of VM management tools.
The challenge was significant, in the sense that Microsoft was virtually giving its Hyper-V away free in an attempt to stall the remorseless march VMware’s ESX virtual machine. And Citrix had piled in with its Open Source XEN VM. But VMware was just streets ahead in making VMs work and it expanded its customer base in the teeth of tough competition – so much so that investors are no longer concerned about VMware’s competition in the server market.
Vmware is growing (in revenue terms) at a rate of about 40-50%. The fact that its market cap is growing faster than that is an expression of investor confidence.
2. Salesforce.com: Market Cap Growth 127.47% (NASDAQ: CRM)
Salesforce.com comes in a very close second, so close that one might be tempted to declare it a dead-heat. The success of Salesforce is probably no surprise. However it may surprise you that it is has more than doubled in value this year. The cloud is clearly not just hype. Stock prices don’t rise entirely on expectations, they have to be backed up with good financial performance and this has happened with Salesforce. The company is now worth well over $18 billion, almost as much as Motorola and more than Dell. Adobe and Symantech.
Salesforce is helped by the fact that it is in the vanguard of the cloud computing revolution and is attracting investors accordingly. But there is much to be impressed with. By virtue of Force.com, the company has become a great deal more than a CRM SaaS capability. It has become both a platform and a business software ecosystem. It has few competitors and, in my view, its growth is unlikely to stall any time soon.
1. ARM Holdings: Market Cap Growth 130.58% (NASDAQ:ARMH)
This is the company that designs the ARM chip that inhabits the vast majority of smart phones and also lives in the iPad. ARM, if you didn’t know, stands for Acorn Risk Machines, ARM being a descendant of a British PC company, Acorn, that did rather well until the Intel/IBM PC became ubiquitous. It created its own chip, a RISC chip which has become successful RISC chip ever. In terms of sheer numbers there will soon be more devices running ARM chips than running Intel chips. That hasn’t happened yet, but the smart-phone market is growing rapidly and it’s now approaching the PC market in size. The iPad and iPhone may run Apple chips, but they’re based on the ARM design.
The increase in stock value reflects more than just the fact that the smart phone market is growing at a pace. Earlier this year ZT Systems unveiled a server running ARM chips, which was well received. So now major server manufacturers are evaluating whether to build ARM-based servers.
Why?
The answer is: Electricity. The ARM chip family has been built for low power consumption – an absolute necessity in the mobile device market, but now also a considerable advantage in the server market, where the cost of power is a big factor. ARM is now more valuable than either AMD or nVidia.
BTW
The graph below (captured from Google Finance) provides a visual view of the share prices of these companies over the past 12 months and hence could act as a summary.
Btw, you might think that this top 5 list is of little importance beyond the fact that the share-holders of these companies have done rather well. I would beg to differ. The success of each one of these companies demonstrates a definite technology trend:
1. ARM: Mobile computing is taking off like a rocket and will likely impact corporate computing in the same way that the PC did, if not more so.
2. Salesforce.com: Cloud computing is growing fast and has traveled far beyond the world of hype that originally surrounded it. It is a force of change.
3. VMware: Virtualization is rebuilding the landscape within the data center. The hypervisor, plus the management software that accompanies it, is the OS for the x86 server farm and it will remain so.
4. Informatica: Data integration has become a thriving subsector within the corporate software market. It is now strategic.
5. Red Hat: Open Source did not go away. Its influence continues and a corporate ecosystem of Open Source software has developed. This is not going to go away. More likely it will continue to grow and may even dominate in time.
And just in case you’re wondering, Apple’s market cap growth over the past year was about 63%. Impressive, true. But it never made the cut.
Note: After I posted this, I received an email pointing out that Tibco ought to be in the top 5 listed here. Perhaps that’s true. If included, it would be first in the list, since it’s market cap has grown about 140% this year. However, its market cap is below $4 billion, so it’s moot as to whether its value is high enough to be included in this list. (I hadn’t been watching that stock, because of its relatively low market cap at the start of the year. It slipped through my net.) In any event, it is worth drawing attention to.
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