This isn’t your great-grandfather’s IBM (NYSE: IBM) more. However, it is still a great long-term investment.
IBM’s groundbreaking history
The former maker of punched card calculators evolved into an industrial computing powerhouse, a personal computing innovator, and then an all-you-can-eat buffet of information technology products. And just as everyone started copying Big Blue’s successful business model, the company made a sharp pivot toward cloud computing, consulting services, data security, and artificial intelligence (AI).
It’s been a tough business transformation, but it’s starting to pay off for existing investors. About ten painful years after the renewed focus on AI and cloud services, ChatGPT came along to launch a market-wide fascination with AI.
Most investors initially didn’t see IBM as a player in that explosive market because it didn’t launch splashy consumer-facing AI apps or show skyrocketing revenue growth.
How IBM is involving business customers in the AI ​​boom
IBM focuses squarely on enterprise-class business customers. Other companies can chase consumers all they want, but this company always wants long-term contracts with deep-pocketed customers.
These deals take time, as the potential customers in this class often have to go through many layers of management approvals and technical testing. For that reason, it wasn’t surprising to see other tech giants sprinting ahead of IBM in the early days of the AI ​​boom.
But approvals are starting to come in and IBM is seeing robust sales in the AI ​​market. Watsonx’s generative AI platform has only been around for a year, but already has more than $2 billion in signed contracts.
The watsonx service includes the same Large Language Model (LLM) technology as OpenAI’s ChatGPT or Alphabet‘S (NASDAQ: GOOG) (NASDAQ: GOOGL) Gemini, but it is linked to a large number of machine learning tools. The resulting AI system combines IBM’s decades of market-leading machine learning research with the easy-to-use flexibility of LLMs, and the entire bundle connects to the customer’s proprietary business data.
While most AI experts wanted to get something to market as quickly as possible, IBM didn’t launch Watsonx until it had traceable data sources, rock-solid security, and other business-friendly features. This is the solution for companies with valuable company data and customer information.
I expect that order book to increase in the coming quarters and years. IBM is the AI ​​leader you forgot, poised to make money as the AI ​​market matures.
Big Blue’s future prospects
That’s just one piece of IBM’s technology puzzle. The company also offers enterprise-level data security tools. A wide range of consulting services sets Big Blue apart from other tech titans. In fact, it is a leader in the emerging field of quantum computing with active quantum data centers in the US and Germany.
Times are changing. IBM is always ready to roll with the punches and explore what the next big idea could be. Doubling down on AI years before the ChatGPT boom is a good example of this flexible attitude. IBM’s quantum computing research is another example.
The stock has seen a market gain of 56% over the past year, but still trades at a modest 16 times free cash flow (FCF). For comparison, the average price/FCF ratio is between S&P500 (SNPINDEX: ^GSPC) shares is a solid 26x.
So you can buy a proven innovator with leading roles in fast-growing markets such as AI, cloud computing and quantum computing – all at a very low price. And whatever twists and turns the road ahead will bring, IBM will see them coming and has likely already started planning the next big change.
In other words, it’s not too late to invest in IBM. This stock should deliver solid returns over the long term, often leading the way into new eras and unheard of technologies.
Should you invest €1,000 in International Business Machines now?
Consider the following before purchasing shares in International Business Machines:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and International Business Machines wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $752,838!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns September 30, 2024
Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alphabet and International Business Machines. The Motley Fool holds positions in and recommends Alphabet. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
Is it too late to buy IBM stock? was originally published by The Motley Fool
