IBM Price Analysis: Buy IBM For Its Dividend And Future Leadership Role In Enterprise Artificial Intelligence

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

IBM Price Analysis


  • I Know First has negative near and long-term algorithmic forecasts for IBM.
  • However, the low valuation of IBM’s stock plus its consistent dividend payments makes it a buy in my book.
  • I am also bullish on the future role of IBM in Artificial Intelligence or cognitive computing.
  • IBM has been the consistent leader in terms of numbers of patents awarded per year. It has proprietary technologies that aren’t being monetized yet.
  • The upcoming July 18 earnings report of IBM will most likely deliver the 21st consecutive quarter of declining revenue. The bearish outlook for IBM will linger on.

I am aware that I Know First has negative near-term and long-term algorithmic forecasts for International Business Machines (IBM). The machine learning stock picking computers are pessimistic over IBM. Yes, I expect IBM to dip lower and will probably trade sideways along the $140-$155 price levels for the next 12 months. The upcoming July 18 earnings report will probably deliver IBM’s no.21 consecutive quarter of revenue decline.

IBM price

The pessimistic cloud over IBM will likely only get darker after it makes its earnings report this week. IBM has had 20 consecutive quarters of revenue decline. This upcoming quarterly report will most likely result in no.21. IBM’s stock will probably be punished after its ER, and I will be happy about it. Why? Because it will give me a cheaper entry point on IBM. I am praying for the sell-side to push down IBM stock lower (maybe to $125) so I can bottom fish it.

IBM price(Source: Mike Nudelman)

Why I like IBM

I am very appreciative of IBM’s current undervaluation compared to its peers. FundamentalSpeculation told me that the lingering negativity of IBM has resulted to its stock being notably undervalued. FundamentalSpeculation’s Artificial Intelligence-enhanced valuation model gives IBM a fair value price of $207.24.  This is calculated by adding adjustments to the Cohort Fair Value of IBM, which is $187.45.

IBM price(Source: FundamentalSpeculation)

The Cohort Fair Value of IBM was computed based on the valuation ratios of companies with similar business fundamentals to IBM. The negativity over IBM has resulted in a notably lower P/E, Forward P/E, EV/EBIT, EV/EVITDA ratios. Compare IBM’s valuation ratios to the average ratios of its peers in the Technology sector and IT Services & Consulting industry. IBM’s current valuation is discounted by 25.87% when compared to its peers.

IBM price(Source: FundamentalSpeculation)

The underpricing of IBM’s stock will be corrected in due course. I am going to buy IBM on the cheap and wait for the market to eventually correct this aberration. It might take years but IBM’s strong dividend history will offset the lack of any potential capital gains.

I also like IBM because of its track record of generous dividend payments and stock buybacks. IBM’s revenue and stock price have been congruently declining for the fast five years. However, IBM still consistently increased its dividend payments since 2013. In other words, IBM is still profitable and has a healthy free cash flow to keep its dividend payments. Please study the chart below. IBM’s revenue and stock price went on a decline while its annual dividend payments went up.

IBM price(Source: YCharts)

IBM can afford to increase its dividend payments over the last decade. As of end of 2016, IBM had a dividend yield of 3.3%. Now that the stock has dropped to below $146, its forward yield is now higher at 3.89%.

IBM price(Source:

The payout ratio of IBM is only 46% and it Trailing Twelve Months yield is 3.7%.  Its latest quarterly Free Cash Flow is $3.21 billion. IBM’s dividend payments are clearly not in danger of ceasing up. I’m going to buy IBM because of its healthy, growing dividend payments and its low valuation. These two reasons should offset zero capital gains over IBM for the next three to five years.

Aside from consistently increasing its annual dividend payment per share, IBM also still made enough annual net profit to consistently do annual share buybacks over the last 10 years.

IBM price(Source:

A Recovery in Revenue Lies In Cognitive Computing

IBM’s traditional enterprise software and hardware business is obviously in decline. However, I noticed that Artificial Intelligence-related products and services are now the second-biggest contributor to IBM’s topline. Cognitive Solutions is business unit responsible for IBM’s AI-related products and services. It has the highest gross profit margin signifying IBM has market leadership and it can dictate its own prices.

IBM price(Source: IBM)

IBM’s mainframe hardware business will probably decline or even become obsolete. However, IBM’s large investment in Artificial Intelligence makes it a long-term leader in cognitive or machine-learning computing. The growing (20% CAGR) Cognitive Computing industry will definitely help reverse the declining revenue of IBM. Watson is no doubt the best example of IBM’s leadership in cognitive computing.

IBM price(Source: Grand View Research)

The Patents Library of Proprietary Technologies of IBM Is Also Growing

IBM’s large Research & Development budget has helped it remain the leader in patents awarded. For 24 straight years, IBM was always the top company which is awarded the most patents every year.  More importantly, more than 2,700 patents of the total 8,088 patents that IBM got last year covers cloud computing, Artificial Intelligence, and cognitive computing.

We are not privy to IBM’s new, still secret proprietary technologies. We just have to assume that it has cutting-edge or game-changing products and services that are already patented but still being tested. We bet on IBM because of this huge number of new patented proprietary technologies.


I rate IBM as a buy for long-term investing. Long-term means you should hold on to this stock for five to ten years. Think of it as a dividend income provider while also having the potential to become a potential multi-bagger. IBM’s stock could shoot higher than $200 once cognitive computing starts getting mainstream adoption.

My ideal entry point for IBM is at around $125 to $130. I am hoping the bearish mood will persist so that IBM will drop to this price range.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

IBM price

IBM price