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Red Hat (NYSE: RHT  ) has never looked like a no-brainer winner among tech stocks, but its business story is getting better by the day.

The latest? The CIO of the state of California, Teri Takai, last week said in a policy letter that using open-source software has been sanctioned as "acceptable practice." Shocking, right? Open-source is typically cheaper than licensed software, and the Golden State faces a multibillion-dollar fiscal crisis. I'll be surprised if more states don't follow California's lead.

Red Hat wouldn't be the only company to benefit from wider use of open-source. Novell's (Nasdaq: NOVL  ) SuSE Linux remains a popular option, and Dell (Nasdaq: DELL  ) offers netbooks loaded with Ubuntu Linux. Hewlett-Packard (NYSE: HPQ  ) , meanwhile, has tuned some of its servers to run Ubuntu.

And let's not forget Google (Nasdaq: GOOG  ) . The Big G's Chrome OS is open-source, too, and is largely based on Linux technologies.

Even if technology spending recovers this year, rising 3.2% as the analysts at IDC predict, and even if open-source grabs a good chunk of the new dollars, Red Hat will have plenty of competitors grabbing for a slice of this growing pie.

The bare-knuckles nature of the open-source market, and Red Hat's sky-high 70 P/E ratio, have some Fools in our 145,000-plus Motley Fool CAPS database worried that the stock has run too far, too fast:


Red Hat

CAPS stars (out of 5)


Total ratings


Percent bulls


Percent bears


Bullish pitches

105 out of 134

Data current as of Jan.14.

"I'm bullish on Red Hat for the long term, but its stock price seems a bit pricey right now," wrote CAPS investor JackCaps on Christmas Eve, shortly after the company issued a terrific fiscal third-quarter earnings report. Subscription revenue rose 21% over the year-ago quarter, in part due to better pricing.

That's a great statistic. Mix in wider acceptance of open-source Linux as an alternative to Microsoft's (Nasdaq: MSFT  ) Windows, and this stock looks like a winner to me. Thus, I'm going long on Red Hat in my CAPS portfolio.

Think I'm wrong? Have a different view? Make your voice heard using the comments box below.

Google is a Motley Fool Rule Breakers recommendation. Microsoft is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call on Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers owned shares of Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is off to the races.

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