International Business Machines Corp. (IBM) Stock Has More Room to Grow

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International Business Machines Corp. (NYSE:IBM) has never been the first company the IT community thinks about when it comes to cloud computing. Its market position lags the better-known “computing-as-a-service” platform from Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT). That’s all right: At maybe $3 billion, pure cloud services don’t even drive 4% of the venerable company’s annual top line.

International Business Machines Corp. (IBM) Stock Has More Room to Grow

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But the transition from physical corporate data to cloud “available anywhere” approaches is enough of a game-changing story that IBM stock’s fourth-place finish becomes extremely interesting to investors.

And as the hoopla around a recent note from Morgan Stanley reveals, it doesn’t take more than a toehold in a fast-growing market to move the needle on an otherwise mature stock.

Sure, AMZN might have 40% of the global cloud business sewn up right now, versus at best 6% to 8% for IBM. AMZN grabbed the early opportunity and is reaping the rewards. However, the game now is all about bigger and more recalcitrant enterprise data pools shifting to cloud environments, and that’s where the real long-term money is going to come from.

Why IBM Stock Can Do Well Wtih the Cloud

Amazon’s cloud business is growing fast, but its share of the overall market has plateaued. IBM stock has more room to come up from behind as it leverages Fortune 500 relationships into more lucrative contracts.

So while AMZN is directly cannibalizing traditional premise-based computing relationships that once belonged to companies like Oracle Corporation (NYSE:ORCL) EMC Corporation (NYSE:EMC) or Hewlett Packard Enterprise Co (NYSE:HPE), IBM is doing what it always does: Transforming the entire data ecosystem in order to keep the money coming in.

It’s not so much about an immediate return on investment here for customers as it’s opening up new strategic capabilities that tie into IBM’s artificial intelligence and advanced infrastructure. Once you graduate to the AMZN cloud, you can migrate around the cloud universe to find the vendors that work best; once you tie in with IBM, you’re there for life.

And as Morgan Stanley’s analysts rightly pointed out, that premise is almost entirely discounted in IBM stock’s share price. Too few investors take the dark horse seriously, crowding instead into AMZN where the cloud story seems more or less baked in — it would take pretty amazing news for this piece of the company to budge the stratospheric stock price much from here.

At minimum, MS thinks IBM’s cloud is worth another $35 per share. We might argue a little about the specific numbers, but it’s not bad to be in fourth place at the moment. The company doesn’t even have to try harder. It’s just that there’s still value for investors to buy IBM stock now and be rewarded down the road. Strip away all the high-tech jargon and that’s the classic market opportunity: buy your diamonds when the rest of Wall Street is chasing shinier rocks.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/international-business-machines-corp-ibm-stock-grow/.

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