IBM, often referred to as “Big Blue,” has been notorious for trading sideways over extended periods. However, a closer look at its performance in the last three years reveals a different story. Instead of stagnation, an uptrend is gaining momentum, offering investors reasons for excitement.
IBM’s Historical Sideways Trade
IBM, a tech giant with a history dating back to before the moon landing, has faced a challenging reputation for trading sideways. Even after 14 years of being public in 1982, its stock was still at its IPO price, and it returned to that level in 1994. Although there were intermittent gains, they were often characterized by lengthy periods of inactivity. Even during the Dot Com bubble, investors who got involved in 1998 could have sold their shares for the same price in 2008. In recent years, IBM’s stock has been trading in a narrow range, currently at 2015 levels.
A Closer Look Reveals Change
Despite these historical trends, there are signs of a new IBM emerging. JP Morgan’s analysts recognized this transformation during the summer. The continued evolution of the company, coupled with the emergence of the red-hot artificial intelligence (AI) industry, has generated positive momentum. IBM recently completed the spinoff of its managed infrastructure services business, Kyndryl, which has reshaped its revenue profile. Over 70% of its revenues now come from high-growth software and consulting, aligning it more closely with industry giants like Amazon.com, Inc. and Oracle Corp.
While there is still work to be done to convince Wall Street of this new IBM, analysts are taking note of the company’s efforts.
Bullish Comments and Upgrades
RBC Capital initiated coverage on IBM stock with an Outperform rating, impressed by IBM’s software platform’s strength. In a complex network environment following the pandemic, IBM is well-positioned to benefit from this shift. With a price target of $188, indicating a potential 30% upside, IBM could be on its way to break free from a decade-long stock range.
Additionally, IBM’s affordability is drawing attention. Jim Cramer noted that “IBM is very inexpensive” and suggested it might be on the verge of taking off. Since May, IBM’s stock has gained 25%, nearing its highest levels since 2018. The rally, ongoing since 2020, is marked by higher highs and higher lows, indicative of a sustained rally.
To confirm the next phase of this rally, shares need to surpass last December’s peak, which they are only 4% away from. Furthermore, IBM offers one of the most attractive dividend yields in the big tech industry at 4.5%, making it an enticing choice for investors as its shares continue to rise consistently.
As IBM embarks on this new journey, it appears that this sleeping giant is indeed beginning to awaken, offering potential opportunities for investors.
