FBR Capital Markets has upgraded the shares of VMWare, Inc. (NYSE:VMW) to "outperform" from 'market perform," saying that the company would be a leading beneficiary of increasing demand for virtualization solutions.

Only last week, Wells Fargo had upgraded VMware to "outperform" from "market perform".

VMware provides virtualization infrastructure software solutions and related support and services primarily in the United States.

"VMware checks continue to suggest that virtualization solutions will continue to be a top priority given its stepping stone status towards cloud computing and overall ability to improve efficiency within data centers, positive dynamics that will bring this technology to the forefront over the next 12 to 18 months, with VMware being a leading beneficiary of this trend," FBR analyst Daniel Ives wrote in a note to clients.

Ives said the company's latest vSphere 5.0 offering, which is expected to be available in the third quarter, will be a nice growth catalyst for the coming year as he expects more enterprises would use this product release as a means to virtualize more of the data center given the high ROI, enhanced security features, and next-generation shift to cloud computing.

The analyst also ruled out the competitive threats from rivals saying that server virtualization front and the overall opportunity around data center efficiency is still in the early innings despite macro jitters.

In a nutshell, the analyst believes server virtualization has served as a general catalyst for increased focus of modernization of data centers, which has benefited VMware as more enterprises move to the cloud.

"While the near-term macro/market conditions are causing many investors to hit the sell button and ask questions later, we believe VMware at current levels represents a compelling risk/reward in light of strong secular trends and a strong product cycle," Ives said.

Shares of California-based VMWare closed Tuesday's regular trading session at $88.17 on the NYSE. Analyst Ives has a price target of $110.