The Cloud May Stabilize IBM Stock, but Innovation Is Where it Wins

At first glance, you’d think that technology icon IBM (NYSE:IBM) would represent the perfect contrarian opportunity among the blue chips. After suffering through years of irrelevance and the subsequent disappointing trading of IBM stock, “Big Blue” made some big moves in the rapidly burgeoning cloud computing space. As such, it appears that the company is poised for a substantive recovery in 2020 and beyond.

Reinvigorated IT Spend Could Push IBM Stock To Its Best Year in a Decade
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However, longtime stakeholders have heard this narrative before. True, IBM did enjoy a positive year in 2019, returning over 25%. For a legacy name, that’s not a bad performance.

But after jumping to a very strong start for January 2019, shares largely traded in a horizontal pattern. Therefore, they have a credibility issue that prevents would-be buyers from having much confidence.

Also, Amazon (NASDAQ:AMZN) continues to dominate cloud market share. The companies that are giving the e-commerce giant something to think about are organizations like Microsoft (NASDAQ:MSFT) and to a lesser extent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). In terms of the big players, IBM, and by extension IBM stock have a long road ahead.

Not only that, Amazon is pressuring IBM on its flagship Red Hat deal. At $34 billion, many critics felt that IBM paid a huge price for the open-source, Kubernetes container platform. In prior articles about Big Blue, I argued that the deal was a necessary one. With the deal, the company could eye the second wave of the cloud narrative by offering efficient, enterprise-level services.

Of course, Amazon is also playing the cloud containers game. Furthermore, they have an extensive clientele list, further overshadowing IBM stock.

Comprehensiveness Is Key for IBM Stock

Over the last five years, the tech legacy’s shares have shed around 11%. Really, that tells you all you need to know about the risk you’re taking. This isn’t the first time that investors thought IBM stock was a turnaround candidate.

On the flipside, IBM is hardly what you would call a fly-by-night operation. While it doesn’t have the sex appeal of an Amazon, it’s been quietly innovating in areas such as artificial intelligence and deep learning.

Therefore, an investment here isn’t just about exposure to the cloud for exposure’s sake. Rather, Big Blue’s services help ensure positive outcomes and solutions for its clients, which may be a distinguishing factor.

For example, the tech firm also has multiple clients under its belt, including companies in high-demand, high-stress environments such as the airliner industry. On its website, IBM discusses a case study where American Airlines (NASDAQ:AAL) approached it for upgrading their rebooking process.

Prior to IBM’s involvement, American Airlines passengers that were forcibly rebooked had to contact human operators to discuss various options: a not-so-pleasant and efficient procedure. What American wanted was an automated solution, where passengers could rebook through a mobile app or self-service kiosk.

Utilizing IBM Garage – an innovative business methodology that transforms ideas into enterprise-level solutions – the tech firm quickly developed an automated system that dramatically eased the stress and complications of forced rebookings.

Over the long run, this is the real strategy that will drive IBM stock. A few years back, the cloud was merely a place to store data. Now, it’s one of many cogs that help deliver meaningful solutions to businesses of all sizes. But to deliver those solutions requires multi-application expertise beyond just cloud-based mechanisms.

And what better describes this versatility than IBM?

It’s Viable but Risks Remain

As I mentioned above, IBM shares haven’t done anything over the last five years. If I may be perfectly blunt, the last time Big Blue was interesting was during the mid-1990s toward the dot-com bubble’s peak euphoria.

In addition, the competition has been fierce for IBM. If it’s not Amazon, it’s Microsoft’s fast-rising cloud service. And generally speaking, other names in the broader tech space attract much more attention than IBM. In other words, you have many other options.

Still, with the markets typically operating in cyclical fashion, I like IBM’s chances. In the first phase of the cloud computing industry, clients were wowed at the technology’s introduction. However, moving toward the mass integration phase, these same clients are now looking for meaningful applications and solutions.

Here, IBM has a strong advantage, offering expertise across multiple tech disciplines. And its cloud platform isn’t just a platform but a proven mechanism for driving success for its clients. To me, that’s worth gambling on IBM stock.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/01/the-cloud-may-stabilize-ibm-stock-but-innovation-is-where-it-wins/.

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