Michael Ruettgers, president and CEO of data storage equipment firm

EMC

(EMC)

, has a very familiar thesis: Forget the desktop PC, network-centric computing systems and handheld devices. With the Internet and the corporate IT buildout unleashing a torrent of information on the world, the next dominant hardware technology will be data storage.

"It's about the millionth time he's given that speech," remarked a weary attendee at this year's

Merrill Lynch

"Hardware Heaven" technology conference in midtown Manhattan, where Ruettgers delivered "that speech" Monday.

And investors have already gotten the message, bidding EMC up about 165% since this time last May, when

Hewlett-Packard

(HWP)

effectively terminated its sales partnership with the company by agreeing to resell storage systems made by EMC rival

Hitachi

(HIT)

. At the time, with HP generating about 20% of EMC's revenue, things looked dire. The market immediately shaved about 10% off EMC's stock, despite Ruettgers' assurances that EMC would do just fine without HP.

A year later, it looks like he was right.

"If you were to back up the tape by six months or so, I, along with a number of other people, were assuming that, come this time, EMC would be facing a little more competition," says Daniel Kunstler, analyst at

J.P. Morgan

, which rates EMC a buy and hasn't done any recent underwriting for the company. "But the way things have played out, EMC has continued to outdistance its competitors, and is in a better business position than we would have assumed. We assumed IBM would be out there bidding on jobs and having an influence on the pricing, and it hasn't really happened."

As he usually does, Ruettgers buttressed his bullish view of the storage industry with some compelling figures, this time from market research firm

International Data Corporation

, which predicts industry-wide sales of storage devices will grow at a 19% clip through 2003. That's more than double the growth rate IDC predicts for network communications revenue, and triple the estimated growth of PC and server sales.

Most observers share that sense. "When you look at companies moving toward ASP

application service provider models and Web hosting and corporate computing moving toward the Internet -- all that probably is causing a quantum shift in the demand for storage," says Roy Howard, technology analyst at Manhattan-based hedge fund

Circle T Partners

. "From a macro perspective, I don't have reason to really disagree with what they're saying about the picture."

Despite that fundamental optimism, Howard says the fund has no position in EMC, and for a very simple reason. "I have some valuation issues," he says, "which have cost me a lot of money over last few years."

Those valuation issues may not go away if Ruettgers' vision comes to fruition. He predicted Monday that the data storage industry will create more market value than that created by all other forms of computing combined. Specifically, he said he sees about $80 trillion in stock-market value tied to storage by 2010. That's more than five times the total market capitalization of the

Wilshire 5000

. And to hear Ruettgers tell it, that value will all be concentrated in a space that, by virtue of its market share, EMC will own.

Not everyone is ready to concede victory in the storage space. "They're first in the large systems market, with a 35% market share," concedes

Deutsche Banc Alex. Brown

analyst Philip Rueppel, who rates the stock a strong buy and whose firm has no underwriting relationship with EMC. "That's by no means overly dominant, though it's much more than their nearest competitor. But the market isn't sewn up by any means. If you look at all external storage, they have less than 20% of the market share."

Though the perception, which Ruettgers likes to feed, is that EMC dominates the storage market, the company's dominance is not as absolute as, say, Microsoft's grip on the PC operating systems or Intel's on PC chip markets.

"There is still a lot of strong competition in the space," Rueppel says. He recommends

Network Appliance

and

Brocade Communications

, two much smaller firms dealing in storage-area networks (SANs) and network-attached storage (NASs). But those stocks make EMC, with its price-to-earnings ratio of near 150, seem like a bargain. Network Appliance sports a P/E of over 400, while Brocade's is more than 1200. "They give you faster growth," explains Rueppel. "They're both companies targeting very explosive market segments." Deutsche Banc Alex. Brown was a manager on Brocade's recent IPO.

"All this stuff is scary," one buy-side analyst confided over Monday's conference lunch. "I wouldn't buy it with my own money. But if a client wants it, who am I to say no?"

It's hard to deny that EMC's future looks very bright. But the brightest investors put their own money on that bet a year ago, when EMC's P/E was sitting near 60.