The Six Top Tech Stocks of 2010

VMware

VMware(VMW), which recently forged a cloud partnership with AT&T(T) and Sun, has enjoyed a good 2009.

The Palo Alto, Calif.-based firm blew past Wall Street's estimates in its recent third-quarter results, boosted by an uptick in spending by the U.S. government.

With a fourth-quarter budget flush acting as a tailwind and an overall improvement in the economy, 2010 bodes well for the company.

"VMware is one of the stocks to watch for next year," Kaushik Roy, an analyst at Wedbush Morgan, told TheStreet. "I think there's more upside for VMware than someone like NetApp(NTAP)."

Still the dominant force in the virtualization software market, VMware is well positioned for firms' post-recession upgrades.

Desktops, in particular, could open up a massive new revenue stream in 2009. With a PC refresh likely following the launch of Microsoft's Windows 7, Roy thinks that many firms are likely to deploy virtualize their desktops.

"Server virtualization is an instant ROI [but] if there are PC desktop upgrades, then desktop virtualization will start to really take off," he explained. "VMware is defining what the computing paradigm might look like five years from now."

Virtualization lets users divide physical hardware into multiple 'virtual' chunks and has grown in popularity among users juggling a myriad of operating systems and applications. With companies also struggling with budget pressures, VMware and its rivals are pushing virtualization as a way for firms to reduce the amount of server and storage hardware within their data centers.

The company's shares have risen more than 80% this year, from $24 to over $44. Trading at almost 70 times earnings, VMware is not exactly cheap, although the company is clearly positioning itself for a tech spending rebound.

The AT&T partnership, for example, came hot on the heels of a deal with networking giant and parent company EMC(EMC) to sell pre-packaged hardware and software for companies' cloud efforts.

VMware CEO Paul Maritz has made cloud one of his top priorities and expects a boost from both Windows 7 and Intel(INTC)'s Nehlaem processor. Investors should also expect to see VMware forge more strategic alliances as the Palo Alto-based firm attempts to squeeze rivals Citrix(CTXS), Microsoft and Oracle.

--Reported by James Rogers in New York

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