Opportunities In The Great Cloud Squeeze: Amazon.com, Inc. (AMZN), International Business Machines Corp. (IBM), VMware, Inc. (VMW)

Still, International Business Machines Corp. (NYSE:IBM)’s moves present a bigger threat. That’s because OpenStack uses KVM was its hypervisor, the software that builds virtual machines out of commodity parts. KVM is now a standard part of Linux, thanks to IBM’s alliance with Red Hat, Inc. (NYSE:RHT), and for VMware virtualization is the cash cow. Without that cash cow none of its other cloud moves get fed.

VMware management recently addressed all this with analysts. Shares were already down almost 20% after an earnings report that failed to meet expectations, yet that drop was not matched by one in EMC (NYSE:EMC), the storage company that spun-out VMware and still owns an 80% stake.

Thus, EMC may prove even more vulnerable to a cloud fall than VMware, Inc. (NYSE:VMW), since investors haven’t pulled out of it in the wake of VMware’s difficulties.

My view is IBM-centric

As you will note below, I hold shares in both IBM and Red Hat, the Linux vendor that has been its software partner in the move to OpenStack. My IBM shares have done well, but my Red Hat is currently underwater.

I expect that to continue for some time, but I fully expect Red Hat to eventually come good due to its IBM alliance. Still, International Business Machines Corp. (NYSE:IBM) is going to remain the safest place from which to play the cloud for some time. Everything else, including Amazon.com, Inc. (NASDAQ:AMZN) (only because of its price), will remain speculative, and I consider Rackspace to be fully-valued. I remain interested in investing in Amazon if its valuation becomes more reasonable, and consider anything below $230/share reasonable – that’s about $40/share below the current price.

But if you want to speculate, then bet in the near-term on VMware, Inc. (NYSE:VMW) because of strategist Paul Maritz, a former IBM executive. Something tells me he’s going to tell the analysts what they want to hear tomorrow, whether or not it works in the market. It may even be worth a few dollars on options, assuming this is mad money you’re prepared to lose.

Take profits, or take losses, quickly. Then keep your cloud powder dry. It’s going to be a wild ride from here.

The article Opportunities In The Great Cloud Squeeze originally appeared on Fool.com.

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