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Tuesday, July 16, 2024

IBM’s Cloud Renaissance: Driving Secular Growth

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Sleeping giant awakens! IBM stock soars 20%, driven by cloud growth & juicy dividend.

International Business Machines Corp. is in the midst of a secular revolution. The company, commonly called IBM, headquartered in Armonk, New York, had a change in its chief executive officer in the middle of the pandemic lockdowns in April 2020, and the change in leadership has paid off.

The technology giant, known for its dividend yield rather than capital appreciation, delivered 15.5% in 2023, outperforming the Dow Jones Index by almost two percentage points. Add in its juicy 4.1% annualized dividend yield, which brings total gains in 2023 to 19.6%, and there are compelling reasons to invest in the company.

Warning! GuruFocus has detected 6 Warning Signs with IBM.

My research illustrates how business fundamentals, cash flows, and margins have started to look much better.

The sleeping giant has woken up

2023 was a year that most economists and market strategists got wrong. According to Bloomberg, while some economists baked in too much pessimism in the economy, market strategists issued calls for 2023 to be bleak. As the economic slowdown narratives faded with blowout U.S. gross domestic product estimates consistently surprising on the upside, according to Fortune, markets eventually became optimistic, and the S&P 500 index hit a 24.7% gain in 2023. The Dow Jones Index underperformed at 13%, but IBM recorded almost 20% gains this year, taking into account its 15.5% stock performance and the 4.1% annualized yield.

While still impressive, many would view IBM as underperforming the S&P 500 Index last year. However, when looking at larger historical performances and accounting for the severe volatility all investors were subject to in 2022, IBM has outperformed the benchmark index. Its incredible performance is illustrated in the chart below.

This feat is something that would not have been deemed possible given how severely IBM underperformed between 2012 and 2020.


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