I am excited about the current situation.
An AI stock that has been overlooked by the market is poised to reach new all-time highs. It’s not Nvidia (NVDA), Super Micro Computer (SMCI), or Amazon (AMZN) – it’s the underestimated International Business Machines, also known as IBM.
A few months back, we discussed IBM’s bullish trend as it was considered a “Sleeper AI Stock.”
Currently, IBM’s stock is gearing up for another significant increase, and surprisingly, there’s been minimal coverage of it on financial news channels – and that’s a good sign for us.
Recently, the company made an announcement about laying off a small portion of its marketing and communications businesses to focus more on the launch of IBM’s AI services.
Despite the news being relatively small, IBM’s stock surged another 3% yesterday, nearing the $200 mark for the first time.
With shares now positioned to rally further once they surpass the $200 milestone, here’s why it’s worth paying attention.
The company is scheduled to report its earnings on April 24. Remember this… we are likely to witness one of the most significant “buy the rumor” rallies in the AI sector this quarter, including IBM.
Analysts are beginning to recognize the shift in IBM’s business model and how it plans to capitalize on AI in the service industry starting this year. This will likely lead to more upgrades in their outlook and price targets, serving as a significant catalyst for the stock.
Breaking above $200 signifies a significant milestone. Investors tend to favor stocks that breach these round numbers. When IBM crossed $100 in 2021, its shares surged by 28%. This time around, we can expect a similar reaction.
Lastly, the earnings. While I anticipate a positive pre-earnings rally, IBM’s post-earnings trends have also been improving.
In the previous quarter, we saw a 20% increase in shares after the company outperformed analyst expectations. One of the reasons IBM is considered an AI Sleeper is that analysts are still adjusting their outlook and expectations for the stock. This suggests that the next quarter’s results are likely to outperform again, further strengthening the rally.
What are the potential risks?
Currently, IBM’s risk lies with the market.
In the event of a significant market reversal, we could see profit-taking on IBM since its shares have outpaced the market. IBM’s returns have been three times higher than the tech-heavy Nasdaq 100, indicating a potential exaggerated downward movement during a market correction.
Bottom Line
Over the past six months, I have been expanding my own “AI Portfolio” with names like Amazon, Nvidia, Super Micro, and others – the technology behind AI.
While those are popular choices, IBM seems to be positioning itself as a leader in the upcoming AI Services Boom, and its stock is still undervalued for that role.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.
