Please ensure Javascript is enabled for purposes of website accessibility

Virtualization: What It Is and Why You Should Care

By Anders Bylund – Updated Apr 6, 2017 at 1:35AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A primer on virtual computing, and how it may affect your investments.

Virtualization is perhaps the hottest high-tech buzzword around these days. But what exactly is it -- and how does the whole concept affect your portfolio of tech investments? Let's find out.

Virtualization 101
We'll start with the basics. Virtualization, also known as virtual computing, is a way to turn one piece of computing hardware into several "virtual machines." A virtual machine is a computer program that emulates a physical computer system. You can run several virtual machines on a single real computer system, and the virtualization software will dole out memory, processor, and other hardware resources to each virtual machine as appropriate.

What's the point?
Dividing physical resources into logical, or virtual, packages helps you get a better return on that hardware investment. A typical enterprise-class server spends much of its time simply spewing excess heat into its surroundings. Many servers end up running the programs for which they were built less than 20% of the time, on average. So packing four or five server builds onto a single physical machine can bring new efficiencies into a data center.

The benefits of adding that virtualization layer are many:

  • Squeeze more use out of your existing hardware.
  • Reduce the floorspace and rackspace footprint of your computing environment.
  • Lower your electrical power draws and air conditioning bills, for a double cost-savings whammy.
  • Reallocate hardware resources as needed without having to send in a tech with a screwdriver.
  • Super-easy disaster recovery -- just move the virtual disk image to a new virtual machine and turn it on.
  • One virtual machine can run Microsoft (NASDAQ:MSFT) Windows, while another rocks Ubuntu Linux, and another is powered by Sun Microsystems' (NASDAQ:JAVA) OpenSolaris -- all running side by side on the same physical machine.

And those are just the most obvious benefits. With all of these immediate and obvious advantages, it's no wonder that the IT industry has taken a shine to virtual computing. Virtualization saves time and money, and it's even a greener, more eco-friendly choice.

Major players
Any virtual computing discussion must start with VMware (NYSE:VMW). The market leader in software and management tools for virtual machines owns 80% or more of the virtualization market, according to several sources. Meanwhile, Microsoft is aggressively pricing its virtualization offerings in a bid to catch up with VMware. Then there's the open-source Xen virtualization platform, with the corporate backing of Citrix Systems (NASDAQ:CTXS). Most virtual servers not named Microsoft or VMware use at least some pieces of the Xen package.

Both Intel (NASDAQ:INTC) and Advanced Micro Devices (NYSE:AMD) added virtualization-specific features to their chips years ago. These features kick performance up a notch, as the "guest" operating system -- that's the OS you're installing inside each virtual machine -- knows that it is being virtualized, and can ask the host server nicely for the processing time it needs. Both chip designers are betting hard on virtual computing in their latest server-class designs.

And without virtual machines, you wouldn't see cloud computing services like's (NASDAQ:AMZN) Elastic Computing Cloud (EC2). Amazon rents out computing time by the hour, based on Xen virtual machines running on the company's massive IT infrastructure. Cloud computing and virtualization go hand-in-hand, and each of those new concepts is revolutionizing how data centers are built and run.

The investing takeaway
Now that you know what the virtualization buzzword really means, and how the pieces of the puzzle fall together, there are many ways you can invest in this trendy concept.

For starters, you can buy into platform providers like VMware, Citrix, or Microsoft. As you've seen, VMware is the clear leader, and highly specialized on this particular software model. Citrix is the up-and-comer with a finger in many a pie, but it's somewhat unclear how the company intends to make money on its open-sourced property. And for Microsoft, this is but one of about a trillion software packages to consider; virtualization is hardly in a position to move Redmond's very big bottom-line needle.

Beyond that, you would do well to look for early and competent adopters of the virtual computing model. Amazon was early on the bandwagon and is steering it with considerable moxie. But feel free to look for others with inventive, new solutions built on virtual servers. And in the end, the entire IT sector stands to benefit from lower costs and higher efficiencies.

If you know of any great virtualization stocks beyond VMware and Amazon, feel free to let us know in the comments box below. It's a big market, and growing like foot-a-night kudzu vines.

Further virtual Foolishness:

VMware is a Motley Fool Rule Breakers selection. is a Motley Fool Stock Advisor pick. Intel and Microsoft are Motley Fool Inside Value recommendations.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.