Red Hat on the S&P 500 is a sign of Linux maturity

When Red Hat had its IPO in 1999, many saw it as the real coming of age of Linux. While there is little doubt that IPO was a big event for Red Hat and Linux, perhaps an even more important one from a milestone point of view will officially occur this Friday.

As of Friday July 24, Red Hat will join the S&P 500 index.

In my opinion this is a major milestone for Red Hat and for Linux.

Red Hat started off on the NASDAQ in 1999 then moved to the NYSE in 2006. Two years later, the NYSE itself moved to Linux as the underlying operating system for trading operations. While financial services are a key vertical for Red Hat, it's not the only one.

In the last several Red Hat earnings calls, analysts keep asking how Red Hat's exposure to financial services is affecting its bottom line. The answer is self-evident. In its first quarter fiscal 2010 earnings, Red Hat showed continued growth despite the global economic downturn.

How did that happen?

The way I see it, Red Hat is not overly exposed to any one market vertical.

They are positioned as infrastructure that many IT shops, whether in government, financial services, manufacturing or any other enterprise requires. As such they are now a great candidate for the S&P 500 because they don't just represent the health of one major market vertical - they represent the wider health of global IT spending.

Linux isn't a niche play anymore and that's the true significance of Red Hat joining the S&P 500. Linux is a technology - that when coupled with superior execution (in this case Red Hat) - is now used as part of a broad measure of financial market performance because it represents broad usage.

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