On Wednesday, IBM stock rallied more than 3% after the company posted better-than-expected fourth-quarter results. The earnings beat the Street estimates by two cents a share, and revenue was up 0.1% year over year, that is not much, but the growth nonetheless. IBM shares have rallied a solid 7.4% for the year to date.
IBM’s one-day stock gain so striking is that it exceeds the stock’s performance for the entire previous decade. IBM stock rose $4.83 on Wednesday and on December 31, 2009, the stock closed at $130.90. After 10 years, on December 31, 2019, it closed at $134.04. That means over the 10 years ended December 31, it gained $3.14, a 10-year gain of just over 2 percent. The S&P 500 rose 190% and tech stocks rallied 300% in the same 10-year period.
A tech strategist Steve Milunovich at Wolfe Research, took a look at IBM shares in a research note Wednesday morning and advised the investors to put the fourth-quarter performance into perspective. He writes, “IBM is in decline,”
“Surveys show it losing share of IT spending.”
Steve Milunovich also pointed out that in January 2013, Microsoft (MSFT) and IBM had the same market valuation. But now after ten years, Microsoft’s valuation is 10 times higher than IBM’s.
Milunovich said in an interview Wednesday, the divergence says more about Microsoft than it does about IBM. After all, there are few examples of tech giants retaining their dominance through generations of technological change. Nonetheless, he writes, investors should ask the question, “Can anything be done to alleviate or reverse Big Blue’s fall?”
IBM shares have declined about 20% since the company announced Ginni Rometty’s ascension to CEO in late 2011. And she actually took over the comapny in 2012. Milunovich also notes that her focus as IBM’s leader has been more to the rollout of the cloud platform strategy and company’s cognitive computing. But he says that Watson’s AI capabilities were oversold, and IBM didn’t establish a leading public cloud position, leaving an opening for the likes of Amazon Web Services, Microsoft Azure, and Alphabet’s Google Cloud.