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Investment Opportunities

Profit From the Rising Importance of Linux Software

For most of the world, there are exactly two flavors of computer: Mac and Windows. Apple (Nasdaq: AAPL) and Microsoft (Nasdaq: MSFT) make the operating systems for 97% of personal computers. And there’s good reason for this hegemony.

Decades ago, both companies were pioneers in bringing the computer out of the IT department and into the hands of ordinary people like us.

However, personal computers aren’t what they once were. Desktop and laptop sales have been declining for years as more users and services move to the cloud. Instead of running programs on their own machines, people are logging into cloud servers. And most of these severs don’t run on MacOS or Windows. Two-thirds run on an obscure but powerful operating system called Linux.

If you really want to invest in the future of computing, you’ve got to have a play on Linux software.

What Is Linux Software?

You may have noticed that there’s no stock symbol next to Linux’s name. This important OS isn’t made by a public company… or even a company at all.

Linux software is open source. In other words, it’s not a commercial product which anyone owns. Rather, it’s free software which is developed and improved pro bono by the programmers who use it.

As a result of this democratized development process, Linux is more customizable than a commercial OS. Windows and MacOS both have proprietary designs with usage restrictions, but not so with Linux.

This makes Linux software ideal for the advanced programmers and IT professionals who make cloud computing possible. They often like to tinker with hardware and software in order to optimize it for their purposes.

Tinkering with Windows or MacOS code is risky, and strongly discouraged by manufacturers. It may disable the product or void the warranty. But with Linux, it’s actually encouraged.

The Rising Importance of Linux Software

As a reminder, cloud servers are the central supercomputers of the cloud. They power web services like email, social media and file storage. When you log into a cloud-based application like Gmail, you’re using your device to remote control a server through the internet.

While Microsoft and Apple still dominate the market for the personal device OS, the same can’t be said about the cloud. According to a recent survey by W3Techs, some 66% of cloud servers use Linux. And that’s largely thanks to the unrestricted, do-it-yourself nature of Linux software.

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Another reason why cloud developers and administrators favor Linux is security. Since Linux software is so customizable, users can fine-tune it to do exactly what they need and nothing more. By contrast, commercial software tends to come bundled with lots of marketable but unnecessary features. These unused bells and whistles (or “bloatware”) can serve as points of entry for hackers.

What’s more, most viruses are made to infect Windows computers. It’s the most popular OS for regular PCs, and one of the oldest. So the brigands of the internet tend to focus on it, leaving Linux with relatively few threats.

Another big recent development for Linux software comes from the personal computing world. Five years ago, Alphabet (Nasdaq: GOOG) released the first Chromebooks. These lightweight computers cost as little as $100 – a fraction of the cost of a traditional PC.

Out of the box, Chromebooks are virtually useless without an internet connection. They can’t really run software other than the Google Chrome web browser. But, with a couple of free downloads and a few lines of code, Chromebooks can be reprogrammed into fully functional Linux laptops. Unsurprisingly, Linux’s small share of the personal OS market has been ticking up since the advent of the Chromebook.

How to Invest

It may seem contradictory that we’re telling you to invest in a free product with no owner. And indeed, there’s no direct stock play on Linux. If Windows is gaining momentum, you can just buy shares of Microsoft. But investing in Linux software requires a bit more creative thinking.

The sophistication and obscurity of Linux software makes it tough to use for a layman. There’s a whole industry of Linux consultants and custom software companies out there. And some of these are publicly traded.

Red Hat (NYSE: RHT) provides customized Linux software to enterprise clients. It’s the largest Linux-focused tech firm in the world. Software giant Oracle (NYSE: ORCL) also does Linux consulting and custom development. Both of their stocks have made steady gains throughout the years.

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Chances are, you’re reading this article on a personal computer or phone. And it’s probably running on an OS made by Microsoft, Apple or Google. But at some point today, you’ll probably check your email, look at a Facebook post, or stream music or video.

All of those services depend on cloud servers and the Linux software inside of them. Your tech portfolio isn’t complete without an investment in this powerful open source OS.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of professional analysts.


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