Although IBM's AI business is still in its infancy, investment industry professionals say that IBM is a stock that "slowly and steadily wins the game", its stable predictability is very suitable for long-term investors with a 15 to 20-year investment horizon or those who wish to receive dividend income.
"Blue Giant" $IBM Corp (IBM.US)$ is quietly reviving, unlike the volatile AI "darling" Nvidia, IBM is taking a steady upward path.
On Wednesday, September 11th, in the early trading session in Eastern Time, IBM rose to a high of $207.90, breaking the intraday record set on March 14, 2013. It rose about 1.3% during the day but quickly fell. In the early morning session, it fell about 0.7% when reaching a new low for the day. After a rebound in the early morning session, it continued to rise and reached an increase of over 2% at noon, continuing to refresh its intraday high. It finally closed with a gain of 2.2%, setting a new closing high for the first time since March 2013, a span of 11 years.
Before reaching a new historical high after 11 years on Wednesday, IBM has already risen by more than 20% this year. As of the close of this Tuesday, the stock price has risen by 25.5% since the beginning of the year. Although the increase this year is far less than the 118% increase of Nvidia, it has surpassed technology giants like Apple, Microsoft, Amazon, and Alphabet. Apple and Amazon have risen less than 20% this year, Microsoft has risen more than 10%, and Alphabet has risen less than 10%.
Commentators believe that IBM has not been favored by stock market investors for many years. This outstanding performance is a result of IBM's efforts as a traditional hardware company to shift its focus to the software field. The acquisitions of Red Hat in 2019 and Apptio last year are reflections of this transformation. IBM is expected to benefit from the AI boom. In other words, in the eyes of investors, IBM is becoming a stable technology stock that bets on the AI boom.
Tim Pagliara, the Chairman and Chief Investment Officer of investment consulting company Capwealth Advisors, commented that IBM is a "slow and steady winning the race" stock. Although IBM is still somewhat overlooked in the technology sector, the recent price trend proves that people have begun to realize and recognize its long-term success.
In late July, IBM's second-quarter financial report showed that the rapid increase in orders for the company's AI business is driving revenue growth. The quarterly total revenue increased by 2% year-on-year to $15.8 billion, slightly higher than analysts' expected $15.6 billion, with software business revenue exceeding expectations, growing by 7% to $6.7 billion. IBM stated that since mid-2023, the value of AI consulting and software orders has exceeded $2 billion, doubling from the $1 billion disclosed in IBM's April first-quarter financial report.
When announcing the second-quarter results, IBM CEO Arvind Krishna stated that about three-quarters of the company's AI orders come from consulting, with the rest coming from software. Over time, the share of revenue from software may increase.
The media pointed out that IBM's cloud business may include data that can help train Large Language Models (LLMs), which also means that IBM is starting to be seen as a winner in the field of AI, with less volatility than more popular AI concept stocks like Nvidia. Investor preference in the US stock market is shifting from overvalued popular tech stocks to cheaper individual stocks. In this environment, IBM is in a favorable position: with a P/E ratio of less than 20, lower than the Nasdaq 100 index's approximately 24 times.
Currently, investors and analysts expect that IBM's growth rate cannot be compared to companies like Nvidia. Wall Street has become increasingly positive about IBM this year, but out of 23 IBM analysts tracked by Bloomberg, fewer than half recommend buying.
Logan Purk, an analyst at Edward Jones who rates IBM as a hold, commented: "The next question is, does (IBM) have any additional drivers? This may not be easy to find, and changing the growth trajectory is not easy for IBM. The AI business segment is currently small and uncertain. In the long run, it may become a bigger driving force, but it is too early now."
Capwealth's Pagliara stated that IBM's stability and predictability are well suited for long-term investors with 15 to 20-year investment horizons or those seeking dividend income. Brian Mulberry, a portfolio manager at Zacks Investment Management Inc., also agreed, saying:
"If I want to maintain a balanced exposure in the technology sector, shift to higher quality, more stable assets on the balance sheet, then I would definitely sell Nvidia today and buy IBM."
Editor/Somer