Things may look bleak for those holding IBM shares, but there is a silver lining to those grey clouds.
Revenues for the software giant had declined for 23 quarters before it posted fourth quarter gains in 2017. The company has also surpassed analyst estimates for the first two quarters of this year.
One key advantage for patient investors eyeing IBM is the price. Many analysts contend that IBM stock is undervalued currently and not priced to anticipate growth. If the company were to post a profit in the second half of this year, investors would likely benefit handsomely.
Although the New York based IBM has managed to demonstrate some progress toward that goal, shares of the multinational have declined almost 5% in 2018. This comes despite a historic rally for tech stocks that has boosted the share price of competitors like Alphabet, Amazon and Salesforce.
At the moment, the dramatic changes in the tech landscape, particularly from mainframe computing to the cloud, has the company playing catch up. The transition to the cloud also has competitors like Oracle struggling to keep up with the pack. But there is also a historical case to be made for legacy technology companies that are able to pivot in the face of widespread change. Microsoft and Intel both faced similar challenges in the past and managed to turn them around into net positive growth which was reflected in their share price.
And IBM itself has certainly dealt with adversity before. Founded in 1911, with almost 380,000 employees and operations in over 170 countries, Big Blue is one of the world’s largest companies. Long a member of the Dow Jones 30, the company has continually shifted its business mix to adapt to higher value, more profitable markets. The company has a robust R&D budget, spending several billion dollars a year on research into technologies including artificial intelligence and next-gen semiconductors.
If the company can post earnings growth and inspire confidence that these earnings will be longlasting, Big Blue’s stock could see an increase of anywhere from 30 to 50%. And that would indeed be a silver lining for patient investors.