International Business Machines' (IBM +3.62%) stock isn't setting the world on fire right now. As of Oct. 1, the tech veteran's shares have dropped 2% in a month and 22% over the last quarter. Big Blue's stock is changing hands at 3.1 times trailing sales and 15.5 times free cash flow -- lukewarm multiples usually attached to slow-growth retailers rather than innovative tech giants.
NYSE: IBM
Key Data Points
Big Blue's boring advantages
Here's a fun contrast. While the biggest names in tech pour hundreds of billions of dollars into AI data centers and fight over consumers' attention, IBM is leaning back in a comfortable chair. It already owns mainframes and Linux machines that run the world's banks, and those customers aren't going anywhere.
IBM's stability doesn't make headlines. Mainframes are cyclical, and the latest quarter was a lull. But a lull in a business that makes up only 15% of IBM's total revenues is hardly a crisis. At the same time, Red Hat's OpenShift grew 29%, and distributed infrastructure sales jumped 37% year over year. Yet, IBM's stock crashed in July after reporting record results.
I'm not done talking about IBM's unique qualities. There are consulting services, the cash-cow nobody brags about at dinner parties. IBM's generative AI consulting book alone is $5.5 billion and growing. Helping other companies figure out how to install, manage, and use AI is a tidy business when the giant companies have budget constraints.
IBM's AI strategy is refreshingly low-drama, too. There's no frontier model, no multibillion-dollar GPU land grab. Just software for the places where code can't leave the building, like the self-hosted version of its Bob development tool.
Image source: The Motley Fool.
Paid to wait
Meanwhile, shareholders collect a 3% dividend yield while waiting. Only 2.4% of Big Blue's float is sold short, so almost nobody is betting against the stock. Almost nobody is loudly betting for it, either. At 17.3 times forward earnings and 31.8% below June's all-time peak, that seems backward.
Mainframe cycles will keep being bumpy. Patient investors can live with that. I think IBM's stock is a fantastic buy right now.
