Betting on IBM Stock
What do you think of when you hear the name International Business Machines Corp. (NYSE:IBM)? It probably conjures visions of dusty computers and dial-up Internet, but forget those images for a second. There’s a lot more to IBM stock than meets the eye.
I’ve seen companies shoot themselves in the foot trying to ignore the evolution of technology, and it never works out well for them. Sooner or later, an ambitious young upstart will come along and eat their lunch. That’s the nature of the big, bad business world.
IBM isn’t waiting around for that day to come, because they’ve seen this movie before. They understand that the wheels of time and technology slow for no one, so it’s better for the company to adapt while it still can. Put another way, IBM stock is still a bet on the future.
The company understood that its core business was nearing extinction, so they took action. If it had done nothing, IBM stock would be in the trash pile of history by now. But here’s what happened instead; IBM stock investors have gained 21% over the last six months.
And that’s not even including the 3.52% dividend that IBM stock yields on an annual basis. The returns on IBM stock far outstrip those of young startups, yet investors are still biased toward these newer, flashy, loss-making companies.
I prefer a business that rakes in cash, which is why IBM stock is so attractive. But I digress. Let’s get back to IBM being under siege by cloud computing vendors which offer businesses the same services, but via the Internet.
It’s a no-brainer for clients. Cloud computing allows them to lease out server space and data analytics products from a third party, adding a measure of flexibility and affordability that was previously absent. Why wouldn’t they switch?
IBM stock would be resting under six feet of dirt if it hadn’t confronted this fact. So the company began a massive turnaround, slashing jobs left and right in older parts of the business, while hiring rapidly in new fields like machine learning and blockchain technology.
Since IBM already has ties with major companies across the world, it’s easy to believe that IBM stock can become a leading player in the field of cloud-based IT solutions. I would have been skeptical if the company had ignored the shifting landscape.
If the executives simply cashed their paychecks and went home knowing that the business was going to crumble, I wouldn’t be this bullish on IBM stock. But they didn’t; they decided to take on Intel Corporation (NASDAQ:INTC) instead.
IBM Stock: Should Intel be Worried?
Intel’s dominance over the microchip market has been absolute for as long as I can remember. Its stranglehold over the market was particularly tight in sub-fields like microchips for data centers. Most servers in the world are powered by Intel. However, IBM is now gunning for that market. (Source: “IBM Revives Its Fight With Intel Over Server Chip Dominance,” Fortune, August 23, 2016.)
Three years ago, the company started selling its proprietary line of “Power” microprocessors to other companies, and it’s been an enormous success. Google (Alphabet Inc) (NASDAQ:GOOG) reportedly uses these microchips in its hundreds of thousands of servers, suggesting that IBM stock is about to benefit from an extraordinary surge in revenue.
IBM’s new line of “Power9” chips is particularly enticing. They are more customizable and efficient for data-heavy firms that serve a specific function, meaning that some Intel customers could be lured to IBM. To industry watchers, it certainly looks like that’s what IBM is trying to accomplish.
With that in mind, I’m turning extremely bullish on IBM stock.