Shares of VMWare Inc. (NYSE: VMW) soared 76% in their first day of trading yesterday (Tuesday), making the Palo Alto-based data-virtualization company the best-performing initial public offering of the year.

Prior to the VMWare offering, the top-performing U.S.-listed IPO was Fortress Investment Group LLC (NYSE: FIG), which climbed 67.6 percent on its Feb.8 market debut.

A unit of data-storage giant EMC Corp. (NYSE: EMC), VMWare raised nearly $1 billion by selling 33 million shares at $29 each. VMWare specializes in a process known as "virtualization." It enables a single computer to function like multiple machines, which means companies can spend less on equipment and energy in their data centers. The rising demand for virtualization software is expected to generate more than $1 billion in sales for VMWare in just this year alone, but many industry analysts say that the greatest profit opportunities for this sector are still ahead.

In a report released yesterday, Jefferies & Co. analyst Katherine Egbert said VMWare appears to be traveling on the same lucrative trajectory as two of the software sector’s biggest success stories: Microsoft Corp. (Nasdaq: MSFT) and Oracle Corp. (Nasdaq: ORCL), two software makers whose combined market value 21 years after their IPOs is a combined $364 billion.

With that promise, it’s no wonder that the company said late last night that the underwriters of its initial public offering had exercised a “green shoe” – or over allotment option – to buy another 4.95 million Class A shares. These shares are in addition to the 33-million share offering of yesterday, and will be bought at the offering price of $29 each.

"This is certainly more than just about anyone expected," Gartner Inc. analyst Tom Bittman told The Associated Press. "Maybe the market is a little giddy."

On Monday, VMWare sold 33 million shares at $29. After the bell rang, the stock had rocketed to $50, on huge volume. It climbed to the $55 mark early afternoon, finally closing at $51 in regular trading. In all, more than 38 million shares changed hands. Citing a report by IPOhome.com, the AP reported that VMWare’s increase from the IPO price was the best first-day gain since last December, when the shares of a smaller high-tech company, Isilon Systems Inc., rose by 78 percent, according to IPOhome.com.

Investors are hoping that VMWare’s launch provides a much-needed kick to the tech sector, which has been down over 13.3% in the last month (the Standard & Poor’s 500 Index is down 7.6% in that span). However, those expectations were met with disappointment Tuesday as the tech sector continued its slide under the weight of the falling stock market.

VMWare is a spin-off of EMC (NYSE: EMC), the world’s No.1 maker of data-storage hardware. After making a name for itself in the ’90s tech boom, EMC bought VMWare for $635 million in 2004. In February, it decided to sell 10% of the unit, prompting chip-giant Intel Corp. (Nasdaq: INTC) to spend $218.5 million for a 2.5% stake in VMWare’s outstanding shares. Not too long later, Cisco Systems Inc. (Nasdaq: CSCO), the biggest maker of computer-networking equipment, bought $150 million in shares for a 1.6% stake.

Why the hype? VMWare’s software allows the powerful server computers that act as the brains and traffic cops of high-speed computer networks to run several different computer-software operating systems – including the Windows Vista system marketed by Microsoft. It will cut the costs of energy, labor and additional servers.

In its registration statement, VMWare said that its net income for the quarter ending June 30 was $34.2 million, more than double the profits of $15.2 million recorded for the same quarter a year earlier. Revenue soared 90% to nearly $297 million.

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