It’s amazing to me how a sudden shift in our paradigm can bring both incredible pain and clarity. In a strange way, that’s how I feel about legacy tech giant turning cloud juggernaut IBM (NYSE:IBM). Not too long ago, many analysts fired shots at management for their Red Hat acquisition, which by any measure was expensive. Naturally, onlookers wondered whether the buyout would move the needle for IBM stock, which has been mostly lethargic.
But here’s the thing: management was committed to taking on Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT), which got off to an early lead in the cloud wars. Sure, from a near-term perspective, the Red Hat deal was pricey. But against a longer-term framework, the move was really one of the few viable moves to bolster IBM stock. Additionally, cloud computing is only growing in relevance, as you no doubt know today.
Let’s not forget another important aspect: IBM was investing in its own expansionary strategies. In this case, expansion means more revenue, more jobs, more economic catalysts. Then contrast this situation with Boeing (NYSE:BA).
Prior to events going sour for the iconic American firm, Boeing spent its surplus cash on stock buybacks. At the time, stakeholders loved the returns that these actions generated. But when things went sour, first with the 737 Max jetliner crashes and later the coronavirus, Boeing finds itself in a word of hurt. Now, management is on their knees, begging the Trump administration for a bailout.
To be fair, IBM stock suffered steep losses this year. However, it’s nothing compared to Boeing. As we tread these difficult waters, “Big Blue” may offer a strong recovery play.
A Huge Opportunity for IBM Stock
Interestingly, IBM put the brakes on its own share buybacks to help pay for the Red Hat deal. From a PR perspective, it’s a picture in contrasts. Plus, it was a prescient move. At least the company has a solid, long-term revenue generator for the future. Others have equity that has been gutted by the pandemic.
Now, with everyone essentially self-quarantining for the good of the country, Big Blue can make a case for its enterprise-level cloud computing platforms. After all, several businesses both large and small have been forced into emergency work-from-home measures.
True, this is a marketing benefit for all cloud competitors. But where IBM distinguishes itself is its vast synergies and scalability. As still one of the most powerful names in technology, the company brings performance and expertise that many other competitors can’t match.
For instance, there are several cloud computing platforms available. However, with everyone suddenly working from home and with virtually all customers forced to go digital, can these platforms hold up to the intense pressure and volume?
This is one of the questions that IBM has answered in its cloud architecture. It’s not just about having the architecture itself but rather being available at all times. If a customer can’t access one platform, they’ll eventually move onto another.
Especially in this strained period where unprecedented stimulus is on the way, every sale counts. With IBM’s resilient cloud applications, this helps clients capture those vital sales. It also helps separate the contenders from the pretenders, bolstering IBM stock in the process.
Moreover, we are likely to see disruptions. Recently, Netflix (NASDAQ:NFLX) slowed its download speeds in Europe to reduce bandwidth. If companies get disrupted, they’ll look toward IBM to provide resilient architectures for next time.
Over the years, we’ve seen corporate entities transition from being confusing conglomerates to specialized units. In this sense, IBM is a bit of a dinosaur. But it’s a dinosaur in a good way because Big Blue’s services encompass relevant industries.
As my readers know, I’ve consistently discussed the upcoming technological transition, what I termed the ‘Roaring 2020s.’ In the next several years, we’ll see incredible innovations that will radically change our society and economy. And I believe that IBM can play a pivotal role in this transition via its cloud and synergistic offerings.
For example, a key innovation for the Roaring 2020s will be artificial intelligence. Sure enough, IBM has made significant progress with natural language processing (NLP). Specifically, NLP allows humans to interact with AI-powered service representatives. Thus, people can use common phrases like “blowing off some steam,” and the AI platform will understand that this refers to calming down and not a chemistry experiment.
And with other strengths such as cybersecurity, Big Blue is poised for big moves. Therefore, I’d take a long look at going contrarian on IBM stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.