Please ensure Javascript is enabled for purposes of website accessibility

Better Buy: International Business Machine Corp. or Intel Corporation?

By Tim Brugger - Apr 6, 2016 at 8:48AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The two tech behemoths are finally gaining investors' attention, but which offers the most upside?

At first glance, it may not seem as though tech leaders IBM (IBM -0.91%) and Intel (INTC -0.86%) have much in common, other than sharing the same industry. However, both IBM and Intel share several attributes that make each of them compelling opportunities for long-term investors, not to mention the added bonus of offering 3%-plus dividend yields.

Though IBM's and Intel's transformations are in full swing, the two behemoths are approaching their efforts to gain a foothold in new, fast-growing markets including the cloud, Internet of Things (IoT), and data analytics in different manners. Intel continues to develop better, faster ways to process data as information shifts to the cloud, while IBM has recently announced yet another acquisition to move its "strategic imperatives" initiatives forward.

Image source: Intel.

The case for Intel
Intel's Q4 earnings results were a snapshot of CEO Brian Krzanich's efforts to drive future growth. Long known as the dominant provider of chips for PCs, one of Krzanich's primary objectives when he took the helm nearly three years ago was to "lead Intel into the next era."

For Intel, the next era means transitioning from a reliance on the PC market and targeting fast-growing new opportunities -- and it's working. Estimates vary, but virtually all pundits agree that the cloud is already a multibillion-dollar marketplace, and it's just scratched the surface. According to Synergy Research Group, the global cloud computing market grew to $110 billion last year.

All that information (with more on the way thanks to the advent of the IoT) is housed in massive data centers located around the world. To garner the real value from all that information, those same data centers require untold processing power to generate actionable results. And that's where Intel enters the picture.

Last quarter's so-so revenue growth of 1% to $14.9 billion didn't exactly light a fire under investors. Intel's Client Computing Group -- home of its PC-related sales -- declined 1% in Q4, and was down 8% for the year. That would explain why Intel's stock price is about the same today as it was when it announced quarterly and year-end financials on Jan. 14, right?

Thing is, Intel's Data Center and IoT groups more than made up for its PC-related weakness, and that's where its story becomes intriguing. Last year's $16 billion in cloud-based data center revenue was an 11% improvement, and combined with Intel's $2.3 billion in IoT sales, continue to make up a larger portion of total revenue. The days of Intel relaying on PC sales are a thing of the past.

Image source: IBM.

The case for IBM
In what has become a recurring theme, IBM announced yet another acquisition to boost its cloud solutions reach. The latest in IBM's string of $5 billion-plus in recent deals is for (NYSE: CRM) consulting partner Bluewolf, and will bolster its efforts in the estimated $111 billion professional services market, delivered via the cloud.

IBM CEO Ginni Rometty's focus on its strategic imperatives, which includes the cloud, IoT, cognitive computing, big data, and business analytics, is in full swing. Similar to Intel, IBM ended 2015 with a drop in total revenue thanks in large part to its legacy hardware and PC-related software businesses. However, the future of IBM, Rometty's strategic imperatives, performed admirably.

Led by a 61% jump in cloud sales after accounting for currency, IBM's strategic imperatives revenue climbed to $28.9 billion in 2015, a 26% year-over-year improvement. Just as importantly, the group of forward-looking, largely datacentric solutions that include its Watson supercomputer, now account for 35% of IBM's total sales.

To put that in perspective, IBM's strategic imperatives equaled "just" 27% in Q3. The plan was to generate 40% of total sales from its key units by 2018. That objective could be met by 2016's year-end at IBM's current pace, and speaks directly to the success of IBM's ongoing transformation.

When it's said and done, investors in search of growth and income would do well by either Intel or IBM. That said, the Street has finally gotten on board with IBM's new emphasis on all things data, while Intel continues its drive to win investors over. The current market sentiment, along with its strategic imperatives results, gives IBM a slight edge over up-and-coming Intel.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

International Business Machines Corporation Stock Quote
International Business Machines Corporation
$128.48 (-0.91%) $-1.18
Intel Corporation Stock Quote
Intel Corporation
$41.65 (-0.86%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.