Is It FINALLY Time To Buy IBM Stock?! (Worst Crash Ever)

Hey, welcome back subscribers. My name is Ali. This is my world of stocks. So, yesterday I gave you guys an update on JP Morgan's earnings and what that meant for banking, for the stock market, and even for the economy at large. But, there was actually an even bigger news story if you can believe it. In fact, it was the absolute worst single day stock crash for this legacy blue chip giant in its entire 115-year history. That was of course International Business Machines, ticker symbol IBM. To give you an idea of how big of an earthquake this was in the tech sector, well, for IBM specifically, it was an even worse beating than the stock took during the infamous Black Monday crash of 1987. So, naturally I've been getting a lot of comments and messages asking me to share my thoughts. Now, full disclosure, I do not currently own any IBM shares myself, at least not yet. I have often thought about it, and to this day IBM remains what one of the very one of the very top stocks on my watch list, which is now I'll just be honest at the very tip top of it. But, given that I am an investor looking in from kind of the outside at the moment, I'm going to do my best to explain this whole situation and let you know if this massive crash is finally the dip that I've been waiting for myself to start buying into IBM stock slowly into a new position. Is this a generational buying opportunity for a legacy giant, or is it a classical value trap waiting to ensnare its next victim? That's what I'm going to try to answer in today's video. It's not going to be easy, but I hope you guys enjoy it. So, let's go ahead and start talking all about it. And hey, if you enjoy this update, let me know by hitting that like button, too. I'll be sure to make more update videos like this on other stocks in the future whenever a big move happens. But, with all that said, let's just Let's ahead and jump straight into the madness. All right. so pulling up the stock chart here, what we can see that giant 25% crash in a single day that erased billions of dollars in market cap and now leaves them down around 35% from the very top, too. So, why did IBM suddenly fall off of a cliff? Well, they released a surprise preliminary kind of warning about their upcoming Q2 earnings report, which isn't supposed to fully release until about another week from now. Well, in this lead up to it, the numbers were already looking like a major disappointment with revenue coming in almost flat year-over-year at only a 1% rise to 17.2 billion, which was well short of the 17.86 billion expected by analysts. While their EPS also missed by around 8 cents and their gross margins fell about 1 percentage point, too. This was mostly caused by their infrastructure segment acting as the main drag on their business with a much bigger 7% drop in mainframe sales that really spooked investors. Those are basically the like corporate kind of supercomputers with various software programs running on top of it that handle a company's, you know, largest, most important data operations to keep the business running smoothly. A lot of companies use them. And a lot of companies will, you know, expand on them, upgrade those systems, and that creates a lot of recurring revenue for IBM over the years, as well. Um however, it wasn't just the raw numbers that spooked investors. Rather, it was also the CEO, Arvind Krishna, um what he had to say about it in their letter to to shareholders, where he basically came out and admitted that the team, quote, "faltered and weren't able to adapt quickly enough to changing business trends" with numerous large, multi-million-dollar deals failing to close on time. So, why were those deals Why were those deals failing to close? Well, it all has to do with really kind of a sudden shift that we're seeing right now and how big companies are choosing to spend their money. So, right now we're seeing a lot of these enterprise clients taking their huge IT budgets away from some of their software and consulting spend and instead using much of it to almost kind of panic buy a ton of AI hardware. It's pretty interesting. Now, we're talking about things like servers, memory chips, storage, stuff like that. I see the industry is so laser-focused on securing the physical infrastructure that is needed to run AI, artificial intelligence, that they're becoming kind of terrified of supply chain shortages and future price hikes. Something that we've been seeing across the sector. We've been seeing a lot of price hikes on all these different AI components and that's actually leading to price hikes all throughout tech kind of in general, too. And not to mention the risk that they have of falling behind any competition who manages to secure an edge on them with more supply. And so as a result, many of these companies are just kind of dumping all of their cash into hardware today so that they can lock in these what they presume to be lower prices and and and get the supply ready on hand before it kind of sells out or before all of their competitors buy up all the stock. And that's just leaving a lot of software companies like IBM out in the cold. And by the way, it's not just a hardware versus software problem, but there's actually a secondary issue happening here too that to be honest, I actually haven't seen a lot of people talking about this leading up to this moment, even though they really should have been because it is a growing concern, but more recently it's become a much bigger deal and it has to do with cybersecurity. See, recently Anthropic just unveiled a frontier AI model called Mythos. And what this did is that Mythos pretty much exposed thousands of these zero-day vulnerabilities across tech infrastructure, including major operating systems, web browsers, and more. Well, this sent even more panic throughout the corporate world because managers are now more worried than ever that their platforms may be at risk of getting hacked. And if there's one thing that we know about large businesses, it's that cybersecurity breaches lead to ginormous costs and oftentimes cause many execs to even lose their own jobs for failing to prevent them and manage manager leaders and IT IT experts and and more. And so as a result of all of this, well, many big businesses are suddenly pausing their planned software upgrades and expansions in favor of allocating more money and resources into cybersecurity instead. It's not a perfect, you know, kind of one-size-fits-all situation here that we're seeing. Like not all companies are going through this exact situation and many are at wildly different degrees of it depending on how much they're willing to spend for everything regardless of what their budgets are looking like. But the point is that we're seeing at least enough of it taking place, enough of this kind of trend to where it is actually slowing the process of getting new deals signed for companies like IBM. And in fact, if you actually looked at the rest of the stock market, well, you might have noticed that this pattern is also playing out throughout much of it, too. Well, on one side, for example, we had enterprise software stocks falling. Uh obviously not to the same degree as IBM, but even some of the strongest tech giants like Microsoft, ServiceNow, Workday Oracle and more, um have all been falling the past few days. While at the same time, many AI hardware and cybersecurity stocks have actually been soaring. So, for example, you know, because companies are hoarding all of these GPUs and flash memory and and storage chips, well, we saw stocks like Nvidia, SanDisk, Micron, and even AMD shoot up significantly, um in terms of price performance. Excuse me. And um you know, because everyone is really so terrified now of the new AI vulnerabilities, well, even cybersecurity providers have skyrocketed by even more in their stock prices. Uh with Palo Alto, for example, shooting up over 6%, uh Zscaler over 7%, Okta over 10%, and CrowdStrike over 12%, all in a single day alone, the same day that IBM stock crashed. In other words, there was um also a bit of a market rotation, I would say, going on this week. And it's clear that IBM, unfortunately, got caught on the wrong side of all of this, you know, market rotation going on within the tech sector. Okay, so if the short-term picture looks so ugly, with businesses seemingly freezing IBM out of software revenue, to instead buy computer chips and cyber defense, then what does this mean for IBM? Are we dealing with a dead company here, heading towards bankruptcy? Well, in my opinion, absolutely not. If we look past this single quarter, we have to remember what IBM actually is and what they represent today. See, for decades, they were known for their clunky, old-school computer mainframes. But over the past few decades, they've completely modernized their business. Even in this terrible preliminary report, their Red Hat division still saw 11% growth, which is their hybrid cloud software business that allows companies to run their apps seamlessly across multiple different clouds and their own private servers all at once instead of having to be locked into a single cloud provider like Amazon or Microsoft. Rather, it's a huge piece of modern tech that gives companies more freedom over their data without being trapped by one provider. Then you have their distributed infrastructure segment, which grew by an incredible 37% with a giant $500 million backlog. I mean, it's doing it incredibly well. These are powerful local servers and smart storage systems that are physically placed right where the data is being made, allowing companies to process gigantic amounts of data locally in real time, which is perfect for running heavy AI workloads at high speed with much greater security. So you can see why demand would be actually rising for that. And to top it all off, they are still a highly profitable leader in enterprise AI consulting with WatsonX, which is an all-in-one AI platform that companies use to build their own private, highly secure AI models trained on their own corporate data to safely handle things like automated customer support or reading data trends and obviously a ton more. All of this is how IBM has transformed themselves into a really high free cash flow business that analysts largely project will continue growing larger in future years. And by the way, speaking of the future, well, there's actually one more growth catalyst that I think investors should probably be aware of two for IBM, and that's their work in quantum computing. I know people feel many different ways about that emergent technology, but the fact is that when it comes to that tech, most QC stocks are insanely speculative startups burning through cash every year. When it comes to IBM, well, excuse me, not only are they the complete opposite of that with billions of cash being generated year after year, but they're also one of the most proven companies in the QC field, too. And it just so happens that even the US government is a big believer in quantum computing, who's now pouring billions into the sector through various grants. Of which, by the way, IBM just received themselves a proposed $1 billion grant from Washington to build and run in New York, which will be the nation's first pure play quantum chip foundry. How crazy is that? That's a big deal. IBM isn't just taking the handout. They're over matching it as well, committing over $10 billion themselves into quantum investments over the next 5 years. With their ultimate goal being to deliver the first large-scale fault-tolerant quantum computer by 2029, which would also be a full 3 years ahead of the government's own national target. So, this really isn't looking like just, you know, a science experiment anymore. Tons of industry experts agree that quantum computing will very likely be the future of computing, supercomputing in general, and IBM is setting themselves up to be right at the center of that by building the infrastructure that competing quantum hardware vendors will probably be forced to use at some point. It's kind of like they're building both the cars and the roads at the same time for the future of of quantum computing. And the US government even signed a mandate recently that all crucial federal infrastructure needs to migrate over to post-quantum cryptography standards by the early 2030s to prevent advanced cyberattacks. Well, once all of these regulated institutions across the country start implementing those upgrades, guess who might end up with a huge technological moat ahead of everyone else in the space? Probably IBM. I'm not saying that it's the surest bet out there, but I'm just saying if you're someone who is actually looking for a QC stock or you're investing in QC stocks, I think IBM is one of the very best among them. And it's at the very least just another growth vector for them to try to tap into longer term. So, with all of that in mind, what's the move here for investors? Well, on one hand, you know, I think we have a brutal short-term headwind where enterprise clients are at best being distracted and will need to reprioritize their budgets for whatever fits their business best. The software sector, all the meanwhile, taking it on the chin at least in the short to medium term. But on the other hand, because of this sudden crash, well, IBM is now a dividend aristocrat with over three decades of consecutive growth yielding over 3% and sits at a valuation now that is even lower than the sector median on a forward PE basis. Seems like a pretty good price to pay for a tech giant of this caliber that generates very strong cash flows, has a modernized hybrid cloud business, and is even a great play on the future of quantum computing. And to me personally, I would probably consider that a buy. The only issue I have is that this was just a preliminary report and after having purchased so many, you know, falling AI software names this year, my gut tells me that I should probably wait for their scheduled full results before jumping in. Now, I'm not sure I can wait that long and I wouldn't be surprised if tomorrow I wake up and say screw it, I'm dipping my toes into this stock with a small position that I can gradually increase over time. Um but I would say for the average person, the average investor, probably the safer play is to wait a little bit for that actual full report and wait for the dust to settle a little and wait to get more analyst opinions on everything going on and get some more insight and then try to make a more educated decision later on. Um but like I said, for me personally, I just think that this is probably the dip I opportunity that I've been waiting for. And hey, you're not going to get a giant dip like this in in such a uh solid um company stock uh without there being some real issues to to drag the stock price down, right? Like everybody wants their huge stock dips to be able to buy stocks, um but they don't want anything to actually cause it. Well, you you can't have it both you can't have it that way, right? Like you something has to be wrong with the company in order to get the stock price to come down. So, is this is this uh reasonable enough of a business issue to get you to buy into the stock? I don't know. You'll have to let me know, but um for me, I think it might be. So, anyway, um yeah, this is one that I'm keeping a very close eye on right now. I might be buying in. I'll be sure to update you guys in the future, so make sure you're subscribed for that, but let me know down below what you think about all of this. Let me know if you agree or disagree with anything I said, and let me know what you're doing yourself. Always you have to do your own research and make your own decisions, but I'd love to hear your thoughts down in the comments. Hey there. Well, I hope you enjoyed this quick update. Thank you so much for stopping by, my friends. I hope you're all doing well. Wish you the best of luck with any decisions you make out there in the market, and I'll catch you guys in the next video. All right, take care, my friends. Bye-bye.