The Cloud-Computing Winner Wall Street Can't Get Enough Of

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: VMware (NYSE: VMW). Are institutions bullish or bearish when it comes to this cloud computing infrastructure supplier?

Foolish facts

Data current as of Feb. 15.

Of the stocks to have benefited from the rise of cloud computing, few have benefited more than VMware. The virtualization specialist, whose software helps break a physical server into several different virtual servers, has grown revenue close to 30% annually over the past three years. Profits are up 20% a year over the same period.

If Fools remain undecided about the stock -- they give it three of five stars -- it's because the trip to higher highs has come with more than a few detours. Just last month, the company blew away estimates only to open lower. Valuation concerns spooked traders and investors alike, and the stock remains down slightly year-to-date.

Longer term, bulls see upside. Cloud computing is too big a trend to ignore and cloud computing doesn't happen without virtualized servers, argues Fool co-founder and Chief Rule Breaker David Gardner.

"As much as I admire the neat trick of issuing more shares to buy more oil tankers, I would far better bet on a high-tech company helping to drive the great computing revolution of our time," David wrote in naming VMware the winner of a Motley Fool Battle Royale back in October.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

It's funny to see Wall Street agree with a Fool, but the numbers don't lie. Big Money investors have been snapping up shares of VMware since the days when David first recommended the stock to our Motley Fool Rule Breakers members. Those who bought then are up about 36% versus a 4% loss for the S&P 500 over the same period.

Institutions have bought into the rally. As a group, the top 25 have added shares every quarter since at least September 2009. More recently, Will Danoff of the highly regarded Fidelity Contrafund (FCNTX) has been a big buyer. He and team opened a position of 262,700 shares in the December quarter, Morningstar reports.

Competitor and peer checkup

Source: Capital IQ. Data current as of Feb. 16.

VMware's ownership profile doesn't say much, if only because parent EMC (NYSE: EMC) still owns close to 80% of the business. Add institutions' 17% stake to that and there isn't much room left for Big Money buyers to get in.

So be it. Fools who want exposure to this dynamic business can get it by buying shares of EMC, which look startlingly undervalued once you factor in the value of its interest in VMware. Here's a closer look at the thesis, courtesy of my Foolish colleague Eric Bleeker.

Do you agree? Disagree? Let us know how you would rate VMware using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.