Rising Short Interest at Red Hat

Not So Fast

However, the real issue here is not that Oracle will suddenly bring a great service to market. Nor is it that the Microsoft-Novell combination will destroy Red Hat. The problem here -- which investors can apply to many industries outside the software space -- is that you have a bunch of big players coming to the party and mucking up the potential for everyone.

Does anyone think Microsoft and Oracle really need to generate above-average financial results in the Linux market? Would it be a big deal to anyone besides Red Hat if these two behemoths came in, helped start a pricing war and just ended up draining all the upside out of the business?

In the meantime, shares of Red Hat will effectively have a ceiling on them, as both customer and pricing uncertainty weighs on the shares. Keep an eye on the short ratio, however, as it will be interesting to see if the market eventually gets negative on Red Hat. A number closer to 20% would be a bit much, considering that Red Hat is still a good company that just happens to be in a business where competition is killing potential.