It didn’t take long for shares of International Business Machines (NYSE:IBM | IBM Price Prediction) to return to their winning ways. With a video clip from President Trump referring to CEO Arvind Krishna as a “legend” resurfacing online in viral fashion, questions linger as to what’s up with the sudden awakening of a name that was seemingly left behind despite its AI and quantum ambitions.
Of course, it’s quite rare that old news would be enough to move the needle that much on a behemoth of a company worth just shy of $300 billion. But the big catalyst, which may not have been fully digested yet, was the big boost from the U.S. government.
Before pulling back on Wednesday, shares of IBM had gained close to 44% in a single month, blasting off to new record highs close to $330 per share. It’s a rather unusual situation, but, at the end of the day, IBM’s top boss certainly deserves praise.
An old clip and government support for quantum firms
And the big question is what happens next as investors look to consider the next move. While positive words, even if they’re around a year old or so, are tremendously positive, I do think that a reinvigoration of the quantum computing trade is to thank for the latest spike in excitement.
Just a few sessions ago, the U.S. Commerce Department put the finishing touches on a $2 billion support package for quantum computing firms, which, of course, includes IBM, which will receive $1 billion. The only thing bigger than words of praise is a grant and investment to give the field of quantum computing the nudge it needs.
As IBM looks to move further down that quantum timeline with a $10 billion five-year investment, it certainly seems like the quantum race is on.
Any way you look at it, though, I do think a large part of the recent run-up is that many investors may have discounted IBM’s quantum prowess and its standing on the timeline.
Whether quantum winds up being the “next AI” remains the multi-trillion-dollar question. In my view, the Trump administration’s move is a wise one, especially given how much the top quantum stocks have cooled off in recent months, with shares of many pure-play names off by double digits from their all-time highs.
IBM is finally getting respect for its quantum growth story
Could it be that IBM and the broader batch of quantum innovators were forgotten about by investors who’ve crowded around the AI chip trade?
It certainly looks that way. In a prior piece published back in late April, I pounded the table on shares of IBM, referring to it as “obscenely cheap,” given its AI ambition and “a quantum business that investors don’t seem to really care for (as much) these days.”
Fast forward to today, and the stock has corrected to the upside in a big-time way. While the near-term will always be hard to predict, I do still think IBM stock is cheap, given the growth narrative you’re getting and the potential surprises to be had from the quantum division.
IBM stock still looks incredibly cheap
At 27.0 times trailing price-to-earnings (P/E), you might not be getting the same deal to be had back in April. But I do think it’s a very fair price to pay for a legacy firm that’s done a fantastic job of reinventing itself in a way to have a front-row seat to two of the most transformative technologies in AI and quantum computing.
After such a heated past month of gains and a lot of enthusiasm circulating into the name, I’d prefer to wait for a bit of a near-term pullback before backing up the truck on a company that might smell just a bit like Intel (NASDAQ:INTC) did more than a year ago.
Now, a fresh equity stake from the government is no guarantee of meteoric gains, but, then again, it’s hard to stay sidelined on a name like IBM, as it re-enters the spotlight after being unfairly forgotten in recent quarters.
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