Ca$htag$: IBM Consumer Demand & Long-Term Outlook into Earnings

here on the Schwab Network. I'm Diane King Hall alongside Kevin Henkes over at the CMO. Time now for our tech segment. For that, let's bring in our next guest. And as Andy Swan, co-founder of like Foley with fresh eyes on IBM ahead of its quarterly results, which come officially after the bell today. But we kind of have some expectation of what's to come because they essentially pre-released recently. You've got new consumer sentiment data. Andy, why don't you walk us through what the big picture looks like? Yeah. I think, you know, when the company preannounced a big miss and the stock crashed more than it has in its entire history, the cat's kind of out of the bag in terms of the software business and other like folio data is actually showing renewed interest in IBM's products and services. At this point. We're seeing it significantly higher than Microsoft, Amazon or Oracle. A nice up trending chart in terms of consumer demand. And what that tells us is that, yes, the IBM clients have put a pause on their spending with IBM so that they can buy all the hardware and other devices and services they need to build out their AI infrastructure. But it tells us that the IBM client isn't going anywhere long term. So we consider this to be, you know, revenue sliding from this year probably to next year for IBM and the discount in the shares at this point, a opportunity, we think, for long term investors because those IBM clients aren't going anywhere. It's a growing group of companies and people that are seeking IBM services. They just aren't spending the money with IBM yet. But the pipeline, we think, looks like it's filling up, and that's what we expect to hear from the CEO tonight. Andy, in a rare event, you've got some mixed data here for IBM. Number one in the consumer demand. You've got it dropping right along with the share price dropping. But then when you compare the year over year change in consumer demand, you've got IBM dominating Microsoft and Amazon and Oracle. So software disruptions and obviously the management is going to have a long day explaining what has happened. Right. Are people changing their spending. Did some of these deals that didn't happen during the quarter. Are they still going to happen in the next quarter? Is there going to be a snapback, you know, or is this just what software is going through right now? And, you know, it's interesting when I see a whole sector down, but IBM doing the best of that sector, it reminds me of the story of the summer school valedictorian. Right. Are they are they the best of that of that sad group? And I don't know for sure, but I think this has got to be a master class in explaining what's going on with your company by the IBM executives on this conference call. Andy, your thoughts on all my thoughts? Yeah. You know, I think mixed bag, summer school valedictorian all those are great phrases to use when describing IBM. This will be probably one of the most interesting earnings calls to listen to of the entire season as they try to walk this tightrope of explaining why their customers aren't spending this quarter or this year, when they expected them to, and how they see that. Going into the future. And so at this point, our data is showing that IBM is winning among this losing group. And it's more about, you know, the sector rotation and the spending rotation that these large enterprise clients are doing. And I think the build up of hardware of AI systems and architecture has just put a pinch on these companies budgets, but their IBM solutions that they're seeking are still top of mind and still filling up that pipeline. So we expect the company to come through and say, yes, this is bad. Our letter was bad. The market's reaction was bad. But we see light at the end of the tunnel because all of this build out eventually leads to growing software demand, and we're the winner in this space. And so that's the way we see it. That's the way like folio data is playing out right now. And so, you know, for long term investors, I think that this is an opportunity to get IBM shares at a very sharp discount compared to where they were just a month ago. And for short term Investors or traders going into this earnings call. I think this is a sit back and watch the fireworks type of event more than a trading opportunity going into this print. Well we saw some fireworks already. I do also like Kevin's analogy there, the valedictorian of summer school. But the one thing you said, Andy was, is there you think that there's light at the end of the tunnel? The question is, how long is the tunnel? Because with that pre release of earnings, it puts into question what full year guidance would be and how achievable that would be. And then, you know, growth slowing in the near term. And how long do investors have to wait. It sounds like you see a bull case here, but what's your view on the bear case here. Well I think the bear case is pretty clear. And that is IBM wouldn't come out with these statements and these enterprises wouldn't pull back their spending so dramatically if it wasn't a real problem for the company, probably for the foreseeable future or the rest of the year. So I think the bear case for the remainder of 2026 is, you know, these enterprise clients aren't going to suddenly whip out their checkbook and change their budget for the remainder of the year. That contrasts with the bear case, which I think you have to have a longer term view and say that money is going to come back into this sector, and IBM is likely to pick up a larger market share in 2027 than they are today. But it's a long road, and Wall Street doesn't have a lot of patience right now for any negative story. So the barricades is fully intact going into this earnings event. I think that the company is back on its heels. And it it's one of those situations where I think if you're a long term investor, you're going to have to be patient. You could dollar cost average over a significant period of time, because I don't see this as a snap back type of event. There's no way they would have put that letter out if they thought it was going to be a snap back type of event. They certainly see troubled waters ahead for the next quarter or two. It's all about then what do we start thinking about 2027 and when does Wall Street start thinking about 2027 and 2028? Could be a little while. Okay, so you say the bear case is fully intact. You know, I don't know if that was a slip of the tongue or if you actually if that's what you mean. But how about this? Give us your earnings score. You know, our regular viewers know the how the metrics work. But for someone who may be tuning in for the first time, just explain. You know what the number means. So what's your earnings score today on this one. Yeah. Like folio earnings score goes from -100 which is the most bearish to positive 100 which is the most bullish. We are pretty close to neutral with a positive 10 or 12 on this. And that's only because the stock has pulled back so much. We do see weakness in our data in the near term. But long term we see good things happening for the IBM pipeline. So it's a mixed signal from us. At this point. I wouldn't be touching the earnings release and I would be thinking longer term if that's the type of trade or investor I am. All right. Thank you Andy. That's Andy Swan, co-founder of Like