IBM Stock Fails to Capture Company’s True Value
International Business Machines Corporation (NYSE:IBM) is trading at its lowest price of the past five years. IBM, once at the forefront of information technology (IT), has lost some limelight to the new players in Silicon Valley (and Seattle, for that matter) like Microsoft Corporation, Apple Inc., and Alphabet, Inc. (formerly Google). This loss of stature has pushed down IBM stock. However, IBM is no dinosaur and it is working on a number of technologies that could propel the company to the forefront of technology once again. Believe me, IBM stock will soon resume its rightful place in the IT stock charts.
IBM stock will gain from the company’s advanced work in cloud computing and quantum technology, to mention just two of its main areas of research. In July 2014, IBM announced it would invest $3.0 billion to push the technological limitations currently faced by silicon chips, leading the path to an entirely new kind of chip and quantum computers. (Source: “IBM Announces $3 Billion Research Initiative to Tackle Chip Grand Challenges for Cloud and Big Data Systems,” International Business Machines Corporation, July 10, 2014.)
Quantum computers, which promise to multiply computing power, represent the future of information technology and no company has done more to advance this area than IBM. The current IBM stock price has failed to reflect just how vanguard IBM is in this field. Meanwhile, in the shorter-term, IBM is pushing the boundaries of cloud computing, now widely recognized as one of the models changing the competitive front in information technology.
IBM and Cloud Computing
Often referred to as the “cloud,” cloud computing simplifies the use of IT resources and makes them available as services in the network of a dynamic and flexible infrastructure, improving efficiency. Nevertheless, its potential goes far beyond the technological innovations that can fundamentally change competitive scenarios, opening the door to more efficient models for conducting business.
IBM considers the cloud a way to rethink and reinvent IT business. Through its decades of experience as a business organization consultant, IBM is in the best position to spread awareness of the cloud and how it can help companies enter new areas. The cloud has become a critical success factor of IT services for IBM. (Source: “Rethink IT. Reinvent Business with Cloud Computing,” International Business Machines Corporation, October 11, 2015.)
IBM is working with thousands of companies worldwide to help them adapt cloud computing products, services, and solutions from its “SmartCloud” portfolio. IBM’s SmartCloud is flexible enough to manage a variety of industries, from commerce to business analytics and optimization, all within a single architecture, which helps companies steer their transformation toward the cloud.
While cloud technology should sustain IBM stock in the short- and medium-term, IBM’s long-term value and potential comes from its quantum computing efforts, which will mark the very future of IT.
In simple terms, a quantum computer is a machine that is as much science fiction as it is science fact, making it possible to achieve new and countless calculations that the human brain struggles to understand.
Quantum Computing Could Boost IBM Stock
Just as a minor example, as we move toward driverless vehicles (cars, aircraft, etc.), computers will be required to perform many more calculations and at a much higher speed than the best chips allow today. This requires an entirely new way to conceive the computer chip and may signal the end of the silicon era. Indeed, some of the new chips being studied are even made of genetic material.
Today’s computer chips perform in binary, working sequentially through the bits (the information) that can have a value of either zero or one. The quantum computer then throws in the Schrödinger’s cat paradox, popularized by the TV comedy show The Big Bang Theory.
Erwin Schrödinger was a physicist and one of the pioneers of quantum mechanics. His paradox involved the example of a cat being placed in a box along with a device able to kill that very cat; the box remains closed. In the realm of quantum physics, the cat can be both dead and alive at the same time, which means that the cat has two states of being at once. (Source: “Quantum Computers and Schrödinger’s Cat,” Michael Sandberg’s Data Visualization Blog, February 25, 2014.)
In the realm of human logic, this is an absurd statement, but not to a quantum computer, which uses this paradox as its very principle. While traditional, binary computer bits are one or zero, quantum computers use “qubits” (quantum bits) that can take the value of zero, one, or both at the same time. This means that a qubit can offer up to four separate bits of data (zero, one, one-zero, and zero-one) to a quantum computer, meaning a quantum computer can process two numbers at the same time.
IBM Making Quantum Computing Scalable and Reliable
Currently, the most powerful quantum computer is the “D-Wave 2x,” which boasts more than 1,000 qubits, or superconducting circuits that can process a number of possibilities at a minimum of double the most powerful binary (bit) processor. (Source: “D-Wave Systems Announces the General Availability of the 1000+ Qubit D-Wave 2X Quantum Computer,” D-Wave, August 20, 2015.) Systems combining a few hundred qubits associated with each other could pulverize any super computer based on current technology, opening the door to a new golden age of information technology.
D-Wave is the only company that has made a quantum computer so far and, in order to function, it must be kept at temperatures near absolute zero (approximately -273 degrees Celsius) in an adiabatic manner (isolated from the external world), which does not make it practical at this point.
Enter IBM. While the D-Wave isolates its quantum machine from the outside world, IBM is experimenting with a four-qubits system, structured like a square-shaped chip with qubits placed on all four sides. This approach is allowing IBM to identify the most typical errors of quantum bits, improving their reliability and replicability on a large scale. (Source: “IBM Shows First Full Error Detection for Quantum Computers,” IEEE Spectrum, April 29, 2015.) IBM will then be able to address the mass production issues that are currently limiting quantum computing creation.
Translation: IBM is on the edge of offering the best business case for quantum computing, a technology that the current value of IBM stock has not taken into account, but that could change drastically alter the IT realm.
As Arvind Krishna, senior vice president and director of IBM Research, notes, “Quantum computing could be potentially transformative, enabling us to solve problems that are impossible or impractical to solve today.” (Source: “IBM advances bring quantum computing closer to reality, Computerworld, April 29, 2015.)
Krishna suggests that quantum computers, first considered for encryption purposes, will soon be used to resolve complex quantum physics and chemistry problems. Moreover, artificial intelligence applications will expand, thanks to quantum computers, and the possibilities in financial analysis are also endless.
Biochemistry and medicine can also benefit from quantum computing, given the ability of quantum computers to simulate and evaluate countless molecular combinations to search for more effective drugs or recreate existing brands in generic form. Artifical intelligence, robotics, and even weather forecasting will also advance through quantum computing, because the qubits will be able to process many more thousands of variables than current machines allow.
Here’s the Bottom Line on IBM Stock
IBM is working on making quantum computing scalable and as such, it is poised to remain as relevant as ever in the IT sector. This technology suggests that IBM stock should see a surge in the medium- and long-term.