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3 Signs That This Slumbering Giant Is Ready to Rise Again

Key Points

  • IBM has a tendency to trade sideways for long periods. 
  • However, the chart from the last three years paints a different picture.
  • The uptrend is gaining momentum, and investors should be optimistic. 
  • 5 stocks we like better than Amazon.com

IBM NYSE: IBM, or Big Blue as it’s known on Wall Street, is the tech giant that receives a lot of criticism. Despite having one of the longest track records among currently publicly traded tech companies (it went public before the moon landing), its shares have a reputation for trading sideways. 

Even after being public for 14 years by 1982, IBM stock was still at its IPO price, and it returned to that level again in 1994. Although there were some gains in between, they were also accompanied by long periods of sideways movement. Investors who entered during the Dot Com bubble in 1998 could have sold their shares for the same price in 2008.

And for those who take a look at IBM’s stock now, it seems that its habits haven’t changed much. The stock is currently trading at 2015 levels, having traded in a narrow range over the years. 

It’s easy to dismiss IBM as a dinosaur that should be relegated to history, but if you look beyond the surface, there are signs of a new IBM emerging. The team at JP Morgan recognized this over the summer. 

Technology Transformation

Analysts noticed that what they called the company’s ongoing transformation was gaining momentum, and the rise of artificial intelligence (AI) was providing a tailwind. IBM recently completed the spinoff of its managed infrastructure services business Kyndryl, which led to a significant shift in its revenue profile. Over 70% of its revenues now come from its high-growth software and consulting business, making it more like Amazon.com, Inc NASDAQ: AMZN and Oracle Corp NYSE: ORCL. It seems that even a leopard can change its spots.

However, there is still a lot of work to be done to convince Wall Street that the new IBM is here to stay. The company has consistently underperformed compared to its peers, and this needs to change for it to reach the highs of 2013. But there is no doubt that IBM is making efforts to make this happen, and analysts are taking note. 

Bullish Comments

RBC Capital recently upgraded IBM stock to an Outperform rating. Analyst Matthew Swanson and his team are impressed with IBM’s software platform, especially given the increasing complexity of networks since the pandemic. Swanson’s price target of $188 suggests a potential upside of around 30% from the latest closing price. If the stock reaches this level in the coming months, it would indicate a break out of the 10-year range that IBM has been stuck in. 

Another positive aspect of IBM is that it still offers a good deal for investors. Jim Cramer mentioned on CNBC that “IBM is very inexpensive, so you can bet that it’s off to the races.” In many ways, it has been since before the summer. 

Technical Setup

Since May of this year, IBM stock has already climbed 25% and is close to its highest levels since 2018. The rally has been ongoing since 2020, although it may not have seen the triple-digit gains of some of its tech peers. However, it has been a strong rally considering IBM’s tendency to trade sideways. The rally has been characterized by higher highs and higher lows, which typically indicate a sustained and extended rally. 

To confirm the start of the next leg of the rally, shares need to surpass the peak reached in December of last year, which is only 4% away. Investors who get involved will also benefit from one of the best dividend yields among big tech companies. A 4.5% dividend yield is attractive, especially when IBM’s stock has been consistently rising in recent months. 

While Amazon.com currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

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