Investors may be worried that certain "old" tech companies have lost their way. But that's clearly not the case with IBM (IBM).
Big Blue reported earnings Tuesday that topped forecasts, news that sent shares up more than 5% Wednesday morning. IBM is now trading just 2.5% below its all-time high ... not bad for a more than 100-year old company.
In fact, IBM was the main reason that the whole market was in rally mode Wednesday. And traders on StockTwits were eager to weigh in about whether or not the big pop was warranted.
Good point. Thanks to the fact that the Dow is price-weighted as opposed to market cap-weighted like the S&P 500, the big rise in IBM makes the Dow's performance look better than it really is. As of early afternoon, the Dow was up about 0.4% even though only 10 of the Dow's 30 stocks were trading higher. The S&P 500, on the other hand, was slightly lower.
Still, even if today's market rally isn't as strong as it might appear, it does seem like IBM is firing on all cylinders right now. And that's even more impressive at a time when investors are wondering if the best days are behind the likes of Microsoft (MSFT), Intel (INTC) and even Apple (AAPL). But there are some Big Blue skeptics.
IBM is an amazing investing story. It's a rare case where investors seem to like the fact that a tech company is boring and predictable. Yes, sales are not growing too rapidly. But earnings growth has remained healthy and so have margins. And that's because IBM made the brilliant move a while back to scale back on (or get out of entirely) the most competitive and low-margin businesses in tech.
If IBM had not sold its PC business to Lenovo and aggressively invested in software and services, its stock wouldn't be trading near an all-time high. It would probably be a struggling hardware company like Hewlett-Packard (HPQ) or Dell (DELL) -- two firms whose only hopes seems to lie in either a break-up or takeover.
With that in mind, one trader didn't seem to think that IBM's software strength was a problem.
But you can't help but wonder if IBM has more up its sleeve to keep earnings growing. One trader theorized that the company could have more commercial applications for Watson, the supercomputer that beat human champs on Jeopardy two years ago and is now being used in the health care and insurance businesses.
Very interesting. IBM executives have talked about developing a Watson app for smartphones and tablets. And you would have to think that Google (GOOG) and Apple -- not to mention new search entrant Facebook (FB) -- nervous.
At the very least, Watson probably would destroy Siri and Graph Search in any trivia contests.
Not a member yet?Sign up now for a free account