Anything associated — even loosely — with blockchain or bitcoin has been blowing up over the past few weeks and months. But International Business Machines Corp (NYSE:IBM) hasn’t caught the same wind. That’s an odd development, given IBM’s push on blockchain technology. So what’s up with the IBM stock price?
There’s an irrational exuberance in the blockchain/bitcoin world. While investors can debate the merits of bitcoin, the price action in other assets is screaming “bubble”.
How about Riot Blockchain Inc (NASDAQ:RIOT)? A few months ago this was a questionable biotech company. Then, it takes a 12% stake in a small Canadian cryptocurrency exchange and suddenly it’s up 740% in three months and 345% in one month? Insane.
The Crypto Company (OTCMKTS:CRCW) is worth $12 billion? Anyone care to venture what exactly this company — which the SEC just halted trading on until January — even does?
Lastly, what about Longfin Corp (NASDAQ:LFIN)? LFIN stock is up 1,240% in about a week and has a market cap near $4 billion. This company had revenue of $28.1 million from Feb. 1, 2017 to June 30, 2017 and a gross profit of $4.4 million. Seriously? A $4 billion valuation, all because it acquired Ziddu.com, a company working with blockchain.
So, what does all this have to do with IBM?
IBM and Blockchain
This isn’t a rant on bubbles. Instead, it’s evidence of how hot the bitcoin, blockchain and cryptocurrency markets have been… that is, unless we’re talking about IBM stock. Despite IBM’s efforts to implement blockchain technologies into its cloud services and other applications, it hasn’t gotten much love for it. In fact, one could argue that it hasn’t gotten any love at all.
Two quarters ago, IBM said it’s working with seven banks in Europe to launch the technology. A year prior, IBM issued a research report that said 15% of banks are looking to implement blockchain technology. By 2020, that figure jumps to roughly 66%. I would bet that number is even higher now.
Further, senior vice president of IBM Systems Tom Rosamilia spoke about various blockchain applications from IBM’s perspective. He spoke of mobile transactions in the $30 billion-per-day range. He mentioned Wal-Mart Stores Inc (NYSE:WMT) and its food supply chain in China, minimizing contamination and pinpointing exactly where contaminated strands came from. Rosamilia also talked about logistics operations improving as well.
“All of those things can be expedited, and we can take that inefficiency out of the system with blockchain,” he explained during a global technology conference hosted by UBS. More recently, IBM mentioned blockchain multiple times in its third-quarter conference call:
“We continued to launch new blockchain partnerships and networks, including an initiative with a group of leading food retailers and suppliers including Walmart, [Kroger Co (NYSE:KR)], Dole, Nestle and [Unilever NV (ADR) (NYSE:UN)] to address food safety. And we’re partnering with UBS and several global banks to build a blockchain-based platform to support trade finance.”
“We also launched our blockchain services practice that will include more than 1,500 consultants who can help enterprises implement blockchain-enabled business models.”
Final Thoughts on IBM Stock
Blockchain isn’t the only thing management was discussing last quarter. In fact, there was plenty of talk on machine learning and the cloud, both strong growth segments for other companies in tech. Just listen to the conference calls of Nvidia Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) and Alibaba Group Holding Ltd (NYSE:BABA).
Click to Enlarge
IBM is using all the right buzzwords and getting involved in the right markets, but something’s amiss: revenue. IBM has seen quarterly revenue decline for more than five years. However, analysts predict sales to fall just 0.1% next year. Meaning that the quarterly revenue decline streak should end at some point in 2018. Further, analysts expect about 1.5% earnings growth this year and 1% next year.
Good growth? Not even close. But we’re talking about a stock with a forward price-to-earnings ratio of 11 and dividend yield of almost 4%. In other words, IBM stock price is a very low-risk holding for investors. I wouldn’t sink my life savings into it, but Big Blue offers a decent yield, with a lotto ticket on making big-time headway in the blockchain world.
Previously, I was a buyer in the $135 to $140 range, as strong support sits near those levels. However, I’m not sure that the IBM stock price will fall that far. Shares are trading well right now and there is an uptrend in place. Plus, $150 has been a significant level in the past. Above that now, I like IBM.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
