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Halftime Pt. 2: 'Explosion' of Demand for this Tech Name?

There has been an "explosion" of demand for cloud computing, says Red Hat CEO Jim Whitehurst while on Monday's Fast Money. adding that the application software company recently reported a strong second quarter and had a large customer agree to a high-dollar deal.

Cloud computing and virtualization is one of the hottest trends right now, he says. A few years ago, the Raleigh, N.C.-based company positioned itself with an acquisition around virtualization where it partnered with CISCO Systems , IBM and others. He says there has been an "explosion" of demand.

There is "pent-up" demand for replacement, Whitehurst says, because some companies have gone up to five years without modifying their servers or computing systems. He thinks a lot of the activity in the tech space is thanks to replacing those old systems for customers.

Whitehurst comes from outside of the tech space, but looking at the numbers, he's "still amazed at this thing." Regarding valuation, he looks at operating cash flow per share. He says the company earned solid double-digit revenue growth, committed to 100 basis margin improvement a year and by not doing acquisitions, has had the ability to buy-back shares. So long as the company presses forward with this plan, he thinks Red Hat is a "pretty extrodinary growth story."

Speaking of acquisitions, Whitehurst says Red Hat will continue to add, but most will be tactical or small, technology acquisitions. He thinks many tech companies tend to do too many acquisitions and because he comes from outside that space, he's "really, really careful" that every purchase fits in its product categories and the capabilities RedHat has.

Earlier this month, a highly-regarded analyst on Wall Street told the Fast Money desk that Red Hat is one of her favorite names. It's a subscription story, says Heather Bellini of ISI Group, adding that they have most of their revenue in the bag for the remainder of the year. She says it’s a derivative play on server virtulaization or cloud computing. For those that think virtualization will continue to take-off, she thinks this is a good play because when companies virtualize their servers, they pay Red Hat for a higher-end product.

TOPPING THE TAPE: BOEING

Boeing extended its lead as the best performer in the Dow Jones Industrial Average yet this year, as the company landed a $9 billion order from Dubai's Emirates Airlines.

But the airlines sector has encountered some turbulence. Delta Air Linesreported its largest quarterly profit in years, but its shares are down slightly. Whitehurst, who was instrumental in leading the airline out of bankruptcy, says Delta's numbers looked strong across the board and beat expectations for the best quarter since 2000. Even though everything looks great, he says investors are nervous about what's to come in the third-quarter.

The fear, says host Melissa Lee, may be that investors are worried about falling back into a recession and Whitehurst agreed. He says Delta's guidance versus expectations was a "little bit light" for the third-quarter, so investors could be worried about potential weakness in Q3.

Going into next quarter, however, projections are soft as far as guidance goes. Delta guided double-digit unit revenue increases on relatively flat to small capacity and Whitehurst says in normal circumstances, those would be considered "phenomenal numbers." Expectation on unit revenue was closer to 20% and he thinks the numbers are good. Guidance may be affected by anything from relative weakness in the euro to slight tweaks around capacity.

What's the Trade?

"The foreign carriers are ones that we love," says Tim Seymour of EmergingMoney.com, including LAN Airlines and Copa Holdings , adding that he sees more growth in Latin America than the US. But he is interested in components of the US airline business, including aluminum and titanium.

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POLL OF THE DAY

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CALL THE CLOSE

Steve Grasso of Stuart Frankel is a seller of the market.

"I use any rallies to sell-off," says Brian Kelly of Kanundrum Capital.

Tim Seymour of EmergingMoney.com likes the S&P 500 above the 1065 level and thinks the market could finish "right above there."

When you look at the volatility index numbers, Pete Najarian of optionMONSTER.com thinks you should still own at those numbers.

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Trader disclosure: On July 19, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Pete Najarian own (C) calls; Pete Najarian owns (AAPL) call spread; Pete Najarian owns (APC) call spread; Pete Najarian owns (V) call spread; Kelly owns (BP) puts; Kelly is short (GS); Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST)

For Brian Kelly
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (AUY)
Accounts managed by Kanundrum Capital own (GFI)
Accounts managed by Kanundrum Capital own (C)
Accounts managed by Kanundrum Capital own (GME)
Accounts managed by Kanundrum Capital own (BIG)
Accounts managed by Kanundrum Capital own (NWL)
Accounts managed by Kanundrum Capital own Japanese Yen
Accounts managed by Kanundrum Capital are short (BA)
Accounts managed by Kanundrum Capital are short (USO)
Accounts managed by Kanundrum Capital are short (GLD)
Accounts managed by Kanundrum Capital are short Aussie Dollar
Accounts managed by Kanundrum Capital are short (AMZN)
Accounts managed by Kanundrum Capital are short (KMX)
Accounts managed by Kanundrum Capital are short (FXI)
Accounts managed by Kanundrum Capital are short (EWO)
Accounts managed by Kanundrum Capital are short (EWI)
Accounts managed by Kanundrum Capital are short (JOE)
Accounts managed by Kanundrum Capital are short (RSX)
Accounts managed by Kanundrum Capital are short (SLX)
Accounts managed by Kanundrum Capital are short (CSX)
Accounts managed by Kanundrum Capital are short (FCX)

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (DYN)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (IP)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (SYMC)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (AAPL)

Dennis Gartman
Funds managed by Gartman are short the Euro
Funds managed by Gartman own the Canadian Dollar
Funds managed by Gartman own Gold
Funds managed by Gartman own (AAPL)

Jim Whitehurst
Disclosures

Whitney Tilson
Funds Managed By Whitney Tilson Owned (BP) On 7/16/10

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