Linux Reality Doesn't Match Hype

Bonavico believes Linux could succumb to security bugs that have plagued Microsoft and eventually will splinter into different varieties like Unix. That may be inevitable as companies and individuals throw aside their altruistic ways and seek to make money off of their work.

For investors who still want to get into the Linux game, one buy-side source notes Novell is a cheaper play on Linux than Red Hat, trading at 42 times forward earnings. The source, who requested anonymity, bought shares of Novell after it announced its SUSE Linux acquisition. Shares of Novell have climbed 31% since that announcement.

"If you believe in Linux and Red Hat, you have to believe in Novell," the portfolio manager said. While execution is a risk to Novell's success with Linux, he said, IBM's decision to invest $50 million in the company is a good insurance policy.

Whether that "insurance" is sufficient to compensate investors for the risks in richly valued Linux-related stocks remains to be seen.

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