The Dow Jones Industrial Average (DJINDICES:^DJI) was down 0.41% at 2 p.m. EST Monday, the second-to-last trading day of a lucrative 2019. The Dow is now up a bit more than 22% for the year.
Shares of Apple (NASDAQ:AAPL) managed to show some strength after an analyst predicted that 5G would be a boon for the iPhone business in 2020. International Business Machines (NYSE:IBM) wasn't so lucky, with the stock slumping in the lead-up to a critical year for the century-old tech giant.
Apple viewed as top 5G pick
An iPhone "super cycle," in which users upgrade in droves thanks to must-have features, has failed to materialize in the past few years. Apple still sells plenty of iPhones, but unit sales peaked back in 2015 and never recovered.
2020 could finally be the year that Apple's iPhone business ramps back up, according to Wedbush analyst Daniel Ives. Ives expects a 5G-enabled iPhone to drive robust iPhone sales next year, calling Apple his 5G-related top pick. Apple hasn't confirmed that a 5G iPhone is inbound, but it's widely expected.
The big question is whether consumers really care about 5G. Or rather, whether they care enough to upgrade to a new, likely expensive 5G iPhone. Ives thinks so, maintaining his buy rating and $350 price target on Apple stock. Shares of Apple currently trade for around $290.
Apple stock was up 0.8% Monday on the analyst commentary, moving against the broader market. Shares of the tech giant are now up nearly 85% since the beginning of 2019, a remarkable performance given that Apple is valued at more than $1 trillion.
IBM weak ahead of pivotal year
The market does not appear all that confident that IBM will turn things around in 2020. The stock was down 1.6% Monday on no significant news.
IBM completed its acquisition of open-source software company Red Hat in 2019, paying $34 billion to strengthen its hand in the hybrid cloud computing market. The opportunity for IBM is potentially enormous. Selling Red Hat software to existing IBM customers with little Red Hat exposure, as well as bringing IBM software to Red Hat's OpenShift cloud platform, could eventually add billions of dollars of additional revenue to IBM's top line.
The risks are also big, thanks to the high price Red Hat commanded. This was an all-cash deal, requiring IBM to load up its balance sheet with debt. IBM plans to pay down that debt quickly, suspending share buybacks to bring its balance sheet back in line. But if the expected benefits fail to materialize, disappointing growth and write-offs could erase any remaining confidence in the company's turnaround.
IBM's focus on wrangling the complexity of cloud computing for its clients, who may be using a mix of multiple public clouds as well as on-premise hardware, seems like the right strategy. The addition of Red Hat certainly makes IBM's portfolio of software and services more compelling, but the company has a lot to prove in 2020.