(Bloomberg) — One of the oldest companies in tech is quietly beating out some of Wall Street’s hottest stocks.
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International Business Machines recently hit its highest price since 2013, about 6% off its all-time high, as investors bet that a turnaround is finally starting to bear fruit after years of weak growth and stock returns. It’s below. Compared to the Magnificent Seven, IBM’s return this year, including dividends, is about 19%, ranking it only behind Nvidia and Meta Platforms.
Jethro Townsend, portfolio manager at Near Impact, said: “IBM is discounted from other industries, but it’s investing heavily in both cloud and AI, and if the AI business is strong, it could see growth. It is likely to accelerate further.” capital. He cited the company’s cash flow generation and “healthy” dividend yield as factors giving it room to reassess.
Much of this year’s progress followed IBM’s results in late January, in which it beat expectations for both free cash flow and revenue and said demand for its AI products was rising. The company is also cutting headcount and is expected to pause hiring for positions that could be replaced by AI, a potential tailwind for profit margins.
The stock fell 0.3% on Wednesday.
However, this surge is a recent phenomenon. Despite Apple being a laggard this year, its five-year total return of 275% is much higher than IBM’s 82% gain over the same period.
Wall Street remains divided, with bulls outnumbering skeptics and bears, according to data compiled by Bloomberg. Although it looks cheap compared to most big tech stocks, IBM’s 19 times forward earnings multiple is near the highest in the past 20 years. Additionally, the stock is trading 4% above its average price target, making it one of the stocks with the lowest return potential of any S&P 500 tech index component.
Still, the company offers something rare among big tech companies: a solid dividend. The stated yield is 3.43%, which is significantly higher than other yields in the sector. Apple Inc. and Microsoft Corp. have stated yields of less than 1%, and while Nvidia pays a dividend, its yield is virtually non-existent.
That wasn’t enough to attract bulls, given IBM’s growth potential, which is expected to remain well below the mega-cap. Revenue is expected to grow at a single-digit pace over the next few years, but the company’s latest report falls short of expectations when compared to the double-digit growth of other AI-related companies such as Microsoft and Alphabet. Ta. The company’s 2024 net profit consensus is for a 4.4% increase over the past quarter, but its revenue outlook is largely unchanged, according to data compiled by Bloomberg.
“The CEO has done a heroic job of starting the company’s turnaround, but the overall slowdown in growth makes this subdued outlook difficult,” said David Katz, chief investment officer at Matrix Asset Advisors. “It’s not cheap enough to be attractive in comparison.” . “It’s easy to do better elsewhere.”
Today’s technology chart
As an indicator of how the tech industry continues to be driven by large companies, the index of small-cap tech stocks is down 7% this year, significantly underperforming other size categories. There is. The S&P 500 tech sector index, which tracks large-cap tech stocks, is set to rise 12% in 2024. However, the index of mid-cap tech stocks performed best, rising 14%.
top technology stories
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The Biden administration is planning to blacklist a number of Chinese semiconductor companies linked to Huawei after the telecom giant made major technological advances last year, according to people familiar with the matter. It is said to be under consideration.
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The U.S. will give Intel Corp. $8.5 billion in grants and up to $11 billion in loans to fund the expansion of its semiconductor factory, the U.S. Department of Commerce announced Wednesday, adding that the U.S. will give Intel Corp. $8.5 billion in grants and up to $11 billion in loans to help expand its chip industry. This is the largest award for a program aimed at revitalization.
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Tencent Holdings plans to more than double its share buyback program to at least $12.8 billion in 2024, placating investors worried about a slow erosion of growth due to China’s economic downturn.
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Samsung Electronics rose to its highest price in more than six months after Nikkei Asia reported that Nvidia was considering acquiring the company’s high-bandwidth memory chips, marking a milestone for South Korea’s largest company.
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PocketHealth Inc. has raised $33 million from new investors including Deloitte Ventures and Samsung Next, joining a growing group of startups raising money to explore the use of AI in healthcare.
Earnings deadline is Wednesday
(Updates to the market have been released.)
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