Should You Invest in IBM Stock?
International Business Machines Corp. (NYSE:IBM) calls to mind dusty old-fashioned computers and dial-up internet, but “Big Blue” has evolved with the times. It is now a cutting-edge firm with huge investments in artificial intelligence and cloud computing.
Both of these investments could drive IBM stock up by triple-digits.
This analysis may sound a little foreign because most analysts focus on small, no-name companies that are on the verge of success. We like those types of stocks as well, but we don’t sleep on bigger tech gems like IBM stock. They are still capable of extraordinary growth.
In fact, giants like IBM stock actually have the upper hand in this market environment. You may have noticed that 2016 was the worst year for initial public offerings (IPOs) in more than a decade. This was no accident—startups were getting hoovered up by the 800-pound sharks of tech.
Rather than making the leap from private to public, today’s startups are happy to be absorbed into a larger firm. It’s a win-win kind of deal. They get a cash payout without all the stress of filing for an IPO, and the tech giants buy their way into cutting-edge technology.
This is exactly what IBM is doing, not to mention Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOG), and Facebook Inc (NASDAQ:FB). Each of these behemoths are conquering and pillaging the new generation of startups.
How else could you explain why IBM has roughly 7,000 patents? It currently holds more patents than many other tech firms put together, and it’s hard to overstate how important this will be in the next 12 months.
Spending on artificial intelligence tech is expected to skyrocket to $47.0 billion in 2020. Since AI spending was only $8.0 billion strong in 2016, we believe it slipped beneath the market’s radar. (Source: “The Year Ahead: Artificial Intelligence Drives CIO Agendas,” The Wall Street Journal, January 2, 2017.)
As investors, we can only profit by acting on this information before the rest of the market. So it is of vital importance not to hesitate for too long. The value of IBM’s patents would theoretically rise alongside the market’s perception of AI technology, so there is an expiry date on this trade.
Don’t be fooled by the $160.0 billion price tag—IBM stock could amass a market value of $300.0 billion once AI spending hits its zenith. All we have to do is sit back and wait. Newcomers like Amazon and Google are working hard to poach IBM’s big contracts, but they might find it harder than expected. The deep relationships IBM has with its clients will help cement a lead in this market.
In conclusion: We are extremely bullish on IBM stock, and believe that it can outperform in spite of being a large-cap stock.