Did You Hear That? IBM Just Revealed My Next 7 Stock Picks

IBM just said the AI dream is over and investors panicked. I heard something completely different though. Hidden inside that warning was a message that could create one of the biggest AI stock opportunities we've seen in years. Hey bow tie nation. Joseph Hog here with your weekly stock market update before the week starts with the stocks to watch and the stock market news you need to see. This week, I'm going to reveal the near-term and long-term opportunities IBM just opened up, including the seven stocks I'm buying along with an update on Alphabet, Super Microcomputer, ticker SMCI, and the market catalyst that could move stocks in just 10 days. First, onto the big news of the week, though, because IBM just delivered one of the most important warnings of this earning season. In fact, the warning was so important, they announced weeks ahead of schedule, but most investors completely missed the real message. IBM pre-announced revenue for the last 3 months of 17.2 billion, well below what Wall Street was expecting and said customers are shifting that spending for much faster than expected, pulling money away from traditional software projects and prioritizing it to AI infrastructure like chips, memory, and servers. And that news crashed IBM by more than 25%, the largest single day drop in the company's 100 plus year history and wiped out $70 billion in value. And while the financial media was all about IBM and fears over that AI spending in general, there are actually two stories here if you look closer and more importantly a near-term and a long-term opportunity. The first is the message that AI infrastructure spending is still strong. IBM missed its sales target because businesses are shifting that spending, not lowering it or cutting it out altogether. The price of memory chips, servers, and semiconductors have all gone up because of that ongoing demand. The sell-off in names across AI infrastructure, those hardware names over the last month, have been on worries that spending by the hyperscalers was slowing down. The four biggest AI spenders, that's Meta, Alphabet, Amazon, and Microsoft are expected to pump over $700 billion into AI data centers this year. But if the revenue just isn't growing fast enough, investors are worried that the cash flow won't be there to justify it all. But that news from IBM shows this is not the case. And in fact, just last April, Amazon CEO Jasse confirmed its $200 billion AI spend, talking like this might even run higher, saying he would rather overspend than lose this AI buildout race. We could get further confirmation of this and an upside trigger into these stocks when Alphabet reports its earnings this week and gives an outlook on its AI capex spend and AI budget Morgan Stanley thinks could double by 2028. that and over the next few weeks we're going to hear from the other hyperscalers that AI spending is still on track and that could mean a quick bounce higher in hardware stocks like Broadcom ticker AVgo, Micron ticker MU, Marll Technologies MRVL and ARM Holdings ticker ARM. All four are down over the last month with memory chip leader Micron down 17% Broadcom just under a percent lower but Marll and ARM losing nearly a third of their value and that is the near-term opportunity over the next weeks and months in the semiconductor supply chain stocks and the data center hardware that we've been following for more than a year. Spending on this group is not over and upcoming earnings reports are going to prove that. Now the longerterm opportunity is more subtle though and investors need to put two trends together for this one but it is just as big. We are likely to hear from other software companies like IBM echo its message in earnings reports over the next two months that AI hardware is getting all the love and software revenue getting the boot. Now, of course, part of this is just going to be the games management plays with those earnings reports like taking a dive when everyone else is so so you can come back later in the year and beat those earnings expectations and max out your stock options. Part of it though is a real shift in AI spending, but not for long. I highlighted this coming trend in our last week's report. this new cost discipline companies are having with their AI budgets. And it couldn't be more relevant here. Companies are grossly overspending on running those AI agents and the programs are looking for ways to spend smarter. And some of the software companies we're seeing crash in this IBM warning are perfectly positioned to benefit. These are companies like Cloudflare Ticker NE, Service Now, NO, Data Dog took DDOG, and Palunteer PLTR, which actually held up pretty well against the tech selloff last week. Most of these saw a dip when IBM warned, but Palunteer and Cloudflare closed up more than 3%. Data Dog was flat, and then Service Now saw a real sell-off, falling 4% on the week. Helping to solve this AI spending nightmare is going to be Cloudflare with its gateway solution, helping companies decide where every AI request should go, which AI model is going to handle it most effectively and cheaply. For its part, Service Now, ticker NO, solves a different part of that problem and is my favorite undiscovered opportunity here. After a gateway routes the AI request, Service Now's agent orchestrator and the control tower decides which agent should do the work. Service Now breaks those jobs down into the most effective and efficient agents, tracks their performance, and measures where they actually save the company money. And Data Dog with its agent observability platform traces every request from start to finish, showing exactly which prompts were used, how many tokens they used, which agents were called, whether the process succeeded or failed. Even more valuable here though, Data Dog lets companies compare their prompts, models, and agents before running them into production. The stock is already up 90% this year, but nobody else has this kind of data and analytics platform that will make AI work. And while I would still love to see it come down to a more reasonable valuation, Palunteer PLTR also benefits from this idea of agent observability along with handling, orchestration coordinating securing and holding those thousands of agents accountable through its AI platform. Palanteer connects everything directly to a company's operational data and processes. Now, despite some of the strength in those last week, I think there's likely pain to come for these software stocks as more companies echo IBM's warning over the next couple of months, we could see even the best of breed fall. That's why I'm focusing on the AI hardware names right now. The stocks that should rebound sooner while waiting for the bigger dip in the software stocks that I want to load up on before that major shift in AI. But now nation just as important here. While I do think those software leaders are going to produce those strong long-term returns, the entire AI theme has sold off over the last month and is causing investors to panic. This is exactly why I warned May 27th that investors need more safety socks and recommended some of the consumer staples like Campbell's companies, ticker CPB. Folks, this isn't about trying to time the market. It's about knowing when to pull back on your risk, take some profits, and protect your money. When investors swing from fear to greed and assume that stocks will only go up, there is nothing wrong with taking that opportunity to spread your portfolio out into the stocks that are going to save your ass in a correction. That's why I warned again May 31st that investors were dangerously exposed and recommended buying broad ETFs in the staples, healthcare, and dividend space. Since then, the Schwab Dividend Fund, the SCHD, and the Staples ETF, ticker XLP, they're both up about a couple of percent. The healthcare ETF XLV is up 9% and Campbell has jumped 12% versus the AI stocks down 10% in that correction territory. Turning it over to the stocks I'm watching this week. Alphabet ticker gogg could be a big catalyst for those AI stocks when it reports its earnings on Wednesday. Alphabet is one of the four major hyperscalers pouring the majority of its money into AI infrastructure companies like Nvidia and Micron. Alphabet, Meta, Amazon, and Microsoft alone were forecast to spend over 700 billion dollars this year. Goldman Sachs recently said that 2027 estimates were too conservative, forecasting the group could spend more than $1.1 trillion. So here, Alphabet's report is going to be hugely important for two reasons. First, investors are going to be watching to see that those hyperscalers continue to increase their AI spending. Now, this has been the big boogeyman lately for AI stocks that that the revenue just isn't there to justify the trillions of dollars spent in AI and the big money players are getting nervous. The group is spending 100% of its cash flow to plow back into AI building along with adding tens of billions of dollars in debt. So, if that payout doesn't come fast enough, Hyperskellish could pull back that money. That's why we've seen investors panic and rush to the exits on some of these AI stocks. Nvidia, ticker NVDA, has managed to hold on, but the broader AI and tech ETF of 84 stocks there, the AIQ is down 8%. Micron has given back 16% and cloud services like Oracle OCL, they're down 34% just in the past month. Now, if Alphabet does give us some good news, increases its level of capex investment, and it's going to go a long way to soothing the market, and the AI infrastructure stocks could see that big bounce. Just as important though is what Alphabet says about how it's spending its capex. That IBM warning said that AI investments were being repprioritized into hardware and infrastructure and away from software. That warning was the latest in troubles for those software stocks. First falling on fears that AI would just allow customers to create their own software and now on the fear that the spending is being prioritized away. The broad tech software ETF, the ticker IGV is down 11%. Palanteer, PLTR, and IBM down 25%. Service Now is down 32% and shares of Applo ticker A down 35% this year. So again, in that Alphabet report, as well as some of those other hyperscalers over the next few weeks, I'm going to be watching for signs that spending is shifting away from software, but could be using it as an opportunity to buy the dip in my favorites, including Service Now, Cloudflare, Data Dog, and Palanteer. and Service Now, ticker NO, will report its own earnings on Wednesday with the shares down 32% this year and plunging 50% from its December peak. The company has been front and center in the AI disruption fear that customers could start coding their own software rather than paying those subscription services to Service Now. Beyond that, the stock tanked 14% on this first quarter earnings that showed a delay in Middle East revenue due to the Iran war. I recommended the stock and bought shares on that dip to $90 a share and was hoping for a big pop on the second quarter earnings to to show that revenue bounced back higher. But with the resumption of the war in Iran, that might be delayed even further. But against all these fears, I continue to buy for two reasons. First, AI is still in its infancy, and enterprise users aren't rushing to create their own untested agents. Second, Service Now is going to be a critical piece in that shift to value maxing I talked about last week with its agent orchestrator, helping companies get the most out of their AI agents. Forecasts are for the company to book 22% sales growth this year and earnings of $412 per share. Strong growth for this kind of valuation. Understand there is a risk that management echoes IBM's warning about shifting that AI spend. And we do see a drop in the shares, but I'm going to continue to buy on that longerterm upside. Super Microcomputer ticker SMCI was down 14% last week on that broad selloff in AI stocks and well nothing has really changed in the stock itself. I know a lot of you out there wanted an update. Now I continue to hold just over 31,000 shares though I covered them completely with call options getting paid that premium and reducing my risk a little. Now this was from my update videos in May and June when the stock jumped past $40 each when I signaled that I'd be covering as well as selling about 13,000 shares to book that profit. of this recent sell-off is on the broader AI pain and we haven't heard anything more from the recent investigations in Taiwan over chip smuggling to China in which only a few employees have been implicated. The company itself has not been implicated. Folks, demand and revenue growth is not the problem with the stock surging last month on that $2 billion deal with ARM Holdings and forecast for the company to post 80% sales growth this year to almost $40 billion. The bare case on profitability has even been partially mitigated with profits up 26% this year to $2.60. 60 cents per share. So this recent pullback is all the broader AI fears. While the continuing distrust of management keeps the shares from reaching their full potential on a price to sales valuation of just49 times though and a PE of 13x, the stock is trading at less than half the valuation it hovered at just last year and is undervalued by almost any measure. As I've said, I still think the stock is a good investment if you have the stomach to ride out that roller coaster and take advantage of those big moves higher by selling calls against it. Now, I've covered mine with September and January calls and going to be letting those exercised or just selling more calls against them to collect that premium until the position closes. Now, I'm going to update our stock market outlook, including a big trigger for stocks in just 10 days from now. 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Now, that $150 discount is only available with the coupon code in the link I'll leave in the description below. So, look for that link or just scan the QR code here. And updating our stock market outlook, nation, it is just 10 days to the next Fed meeting and what could be another big catalyst to support stocks. Fear that chair wars and the central bank would raise rates to fight inflation has been one of the big worries for investors. But I argued in June that Wall Street was totally wrong on this. Back then, the CME Fed Watch tool was forecasting 40% odds that the Fed would raise rates this month, better than 50%, that we'd get two rate hikes by the end of the year. I have been arguing that inflation was about to come down, that there was no way in hell worsh was going to rush to raise rates, and and that no increase would help push rate sensitive stocks up. Last week's consumer price index, the CPI, measure of inflation, proved that showing inflation coming down to a three and a half% pace last month and stocks jumped on the news. Now, odds of that rate increase this month had fallen to just 10%, though the market is still betting 50/50 on a September rate hike and likely only one rate increase this year. I know this is a lot of economics nerd talk, but this is more important than most investors understand. I continue to believe that the market is overestimating the likelihood of interest rate increases and each Fed meeting this month and the 10 days and then on September 16th are going to prove that a Fed on hold is going to help support stocks and is a big reason I'm still buying in this market. Get your $150 discount and start using options investing to lower risk, boost returns, and create income. All with a 14-day guarantee and the link I'll leave below. 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