Last week was huge for IBM (NYSE:IBM) investors in every way, except the one that mattered most: the stock price. Shares of Big Blue were rose only about 2.7% Friday after blowing away Wall Street's estimates in the second quarter.

I'll understand if, in writing that, I sound like a greedy IBM shareholder. Perhaps I am. Before you decide, please consider that Big Blue:

  • Beat the consensus estimate by $0.16 per share, or 9%.
  • Raised its full-year outlook by $0.25 per share.

Microsoft (NASDAQ:MSFT), meanwhile, came up a penny short of Street estimates and saw its stock fall more than 6%. Do the math: A less-than-1% miss is worth a 6% haircut, and a 9% beat is worth a less-than-3% gain. Un-freaking-real.

Big Blue brings the big green
But let's talk long term. My math -- which assumes $13.7 billion in trailing free cash flow (FCF) and a 9% discount rate, among other things -- says that IBM is fairly valued at $135 a share ... if FCF improves by just 3% a year from now till eternity.

No way is that a fair estimate. Look at history. Since 2003, Big Blue has improved its free cash flow by around 7% annually. Figuring for anything less than that, especially now that IBM is winning work in India --  against top local rivals such as Infosys (NASDAQ:INFY) -- would be so conservative, it's silly.

And don't forget the dividend. Over the same four-and-a-half years, IBM has boosted its per-share payout by an average of more than 20% a year. That's outrageous growth.

IBM: Center of the tech universe
Most importantly, IBM offers investors instant tech diversification. Big Blue competes with Oracle (NASDAQ:ORCL) and Microsoft in databases and other infrastructure software; Intel (NASDAQ:INTC) in chips; Sun Microsystems (NASDAQ:JAVA) and Dell (NASDAQ:DELL) in servers; and Accenture in services. No other firm covers so much, so well.

You'd need an army comprised of the world's smartest people to accomplish what IBM does regularly. Good luck hiring them; most already work for Big Blue. That's why it owns more patents than anyone else. At one time, it even considered selling R&D outsourcing services.

With so much brainpower, IBM can afford to take risks, as it has in broadly adopting open-source software and ideas. Its newest idea is to put $1.5 billion into semiconductor manufacturing facilities in New York, IDG News service reports.

Good call. IBM has been making chips for decades. Its breakthroughs include codeveloping the PowerPC series that powered Macintosh computers for years. More recently, IBM has teamed with Sony for the Cell processor, a miniature supercomputer currently in use in the PlayStation 3.

Creating technology to improve the process of assembling Cell and its silicon siblings could save millions in manufacturing costs. There's also the possibility of a Rule-Breaking discovery, since Big Blue is working with nanotech. If so, it'll be the kind that leads to more patents, more licenses, and thereby, more profits.

IBM is increasingly responsible for the technologies we depend on. As the Web increases that dependence -- and creates the need for still more geekery -- we'll turn to Big Blue to invent it.

Yet Mr. Market says you should expect this business to grow just 3% a year. I'll take those odds. You should, too.

Accenture, Dell, Intel, and Microsoft are Inside Value picks. Try this market-beating service risk-free for 30 days.

Fool contributor Tim Beyers owned shares of IBM and Oracle at the time of publication. He's also a member of the Rule Breakers team. The Motley Fool has a disclosure policy.