The past five years have been lackluster for tech giant IBM (NYSE:IBM). Despite being one of the largest and best-known technology firms in the world, IBM stock was unable to keep pace with its peers and investors turned their backs on Big Blue.
However, the sleeping giant has been slowly building out new segments based on promising technology in an effort to make a recovery. Despite a 20% rise over the past six months, IBM’s stock price doesn’t reflect the firm’s impressive future growth potential, making now a great time to put IBM on your watch list.
Righting the Ship
It’s taken a long time for IBM stock to make a comeback. Back in 2013 when the share price started to slide, many questioned whether it was too late for the hardware maker to change with the times to keep up with the fast-paced tech world.
Since then speculation about whether IBM would be able to replace its antiquated hardware business with new, more profitable divisions has kept the share price in limbo- but it looks like things are finally turning around for good.
IBM management has been focused on shifting its focus from hardware-related businesses to growth areas that can carry the business into the future. Cloud computing is at the top of that list and IBM’s cloud arm is in great shape.
IBM’s most recent results showed that cloud revenue was up 8% from the year-ago quarter. Right now cloud computing makes up around a quarter of IBM’s overall revenue, but that figure is likely to increase in the coming year.
Chief among IBM’s growth catalysts in the coming quarters will be the benefits of the company’s Red Hat acquisition. With Red Hat under the IBM umbrella, the firm can boost its revenue by cross-selling IBM software to Red Hat users and vice-versa. Importantly, the added functionality that Red Hat brings to IBM’s cloud business should also be a major draw for new customers, especially as a larger number of business activities are shifted onto the cloud.
Don’t get me wrong, the Red Hat acquisition was an expensive one and that weigh on the firm’s results for the remainder of the year. However, 2020 and beyond looks promising for IBM as management is expecting revenue growth in the mid-single digits over the next few years.
Innovation Powers IBM Stock
Innovation may not be the first word that comes to mind when you think of International Business Machines stock, but that’s part of the reason the firm is so underrated. IBM has been working on groundbreaking technology that could carry the firm into the future.
One big future bet for IBM is blockchain, the technology that powers cryptocurrencies like bitcoin. While the cryptocurrency hype has faded significantly, it’s important to separate blockchain and it’s immense potential from the bubble that was bitcoin.
Blockchain has thousands of cross-industry applications and the technology itself could revolutionize not only the financial sector, everything from contract law to food safety.
IBM is already a leader in the blockchain space— the firm has been working with a wide variety of international blockchain clients across several industries. That’s a big deal because blockchain is seen growing in to a market worth $60 billion over the next 5 years.
The Bottom Line on IBM Stock
IBM stock is no longer backed by an old-school hardware firm on the edge of extinction. Instead, IBM is in a great place to leverage is size and clout in order to stake its claim in the future of the tech industry.
While I’ll admit that it’s taken longer than expected for Big Blue to start showing signs of life, I think now is a great time to get one board before the rest of the market realizes with they’re overlooking.
IBM stock’s P/E sits at just 14.6, reflecting investors’ lack of confidence in the firm’s future promise. The remainder of the year is likely to bring with it some volatility, at least until the benefits of Red Hat are fully realized, however, IBM’s 4.5% dividend yield makes the wait for stability much more bearable.
As of this writing Laura Hoy was long IBM.