Stocks to Play the Corporate Tech Spending Surge and Cloud Computing Trend

As IBM (NYSE: IBM) positive earnings results suggest, corporate IT spending continues to rebound as companies pour chunks of their nearly $2 trillion in cash into upgrading technology that has been getting older since the beginning of the financial crisis. Other strong tech stock earnings reports lately include VMware (NYSE: VMW), Intel (NASDAQ: INTC) and Juniper Networks (NYSE: JNPR).

Among the biggest places where that money might get spent is in so-called cloud-related services — that enable companies to shift their IT applications from a fixed cost to a variable one that�s outsourced to other providers –� may grow at a 20% compound annual growth rate to $148.8 billion in 2014 from $58.6 billion in 2009, according to Gartner Group.�As companies boost their spending on technology, which providers will benefit and which ones make the best investments now?

Corporate tech spending bellwether, IBM, beat expectations and�raised its guidance after reporting earnings on Tuesday.�Its operating earnings rose 21% to $2.41 a share — beating estimates of $2.30 a share�– on revenues that climbed 5% to $24.6 billion. Not only that, but IBM boosted its EPS estimate for 2011 from “at least $13″ to “at least $13.15.” The results were strong due to new hardware, up 40%,�and a rise in analytics software, up 20%, about which I wrote, that could account for $16 billion in 2015 sales.

In addition to IBM,�three other companies that benefit from the rise in corporate IT spending reported strong results, according to Bloomberg:

• VMware (NYSE: VMW) makes virtualization software that makes it cheaper for companies to store information. It beat operating profit forecasts of 42 cents a share by six cents and its sales grew 33% to $843.7 million. VMware is�very expensive�on a Price/Earnings to Growth (PEG) ratio of 4.56 (I think 1.0 is fair value)�on a P/E of 114 with earnings forecast to rise 25% to $1.52 in 2012.
• Intel (NASDAQ: INTC), benefiting from the presence of its chips in popular smart phones and tablets, enjoyed a 29% rise in EPS to�$0.56 10 cents above estimates, and its $12.8 billion in revenues, up 25%, were $700 million higher than expected. Intel’s PEG is 1.33 on a P/E of�10.5 with earnings forecast to rise 7.9% to $2.19 in 2012. If current trends continue, that growth rate could be very conservative.
• Juniper Networks (NYSE: JNPR), the second largest maker of network equipment, rode a 21% increase in profit to 32�cents a share, meeting�expectations.�Juniper’s PEG is 1.21 on a P/E of 34 with earnings forecast to rise 28% to $1.69 in 2012.

IBM, by the way, is far from cheap. Its PEG of 1.44 on a P/E of 14.3 on earnings forecast to grow 9.9% to $14.45 in 2012 may not be the best way to play the growth in corporate IT spending. Of the four, Juniper and Intel�are the biggest bargains

Peter Cohan has no financial interest in the securities mentioned.