International Business Machines Corporation or IBM was established in 1911 under the name Computing-Tabulating-Recording Company and was involved in the manufacturing of measuring and record-keeping systems. It ventured into the development of computer systems and its IBM Mainframe dominated the global computing platform market from the 1960s and 1970s. The company also succeeded in the microcomputer market in the 1980s and was one of the main companies that ushered in the era of personal computing.
However, due to the failure to protect its intellectual property and the increasing competition, IBM exited several end-user markets. It has since transitioned into a business-to-business information technology company with a large and diverse product portfolio concerned with data analytics, cloud computing, information technology infrastructure, cybersecurity, and artificial intelligence. The company remains one of the most successful companies in the United States and one of the largest tech companies in the world.
Is It Still Worth It To Invest in IBM: A Look Into the Advantages and Disadvantages of IBM Stock
Pros: IBM Stock Advantages
IBM has a long history of technological innovations. The company has an established technology stack that has enabled it to deliver diverse services and solutions to business customers from different sectors and industries. IBM has remained at the forefront of enterprise technologies through significant investment in research and development. It is true that it has withdrawn from the end-use or retail market segments but it continues to maintain a strong presence around the world. The following are the advantages of investing in IBM stock:
• Established Global Presence and Operations: The company is considered the largest research organization in the world. It has 19 research facilities across the globe and it has earned a reputation for being one of the few U.S. companies that are constantly expanding its intellectual property portfolio. IBM has a presence in over 170 countries and has served multiple businesses from different sectors and industries.
• Brand Reputation and Company Recognition: It has a long history and a proven track record that has made its name synonymous with credibility. The company also operates one of the largest providers of business consultancy and information technology services in the world. It is also one of the largest employers with over 290000 employees across its various offices and operations centers across the globe.
• Diverse Portfolio and Specific Industry Focus: Another advantage of IBM stock comes from its diverse portfolio of products. The company offers hardware, software, cloud infrastructure, data analytics, artificial intelligence, and consultancy to businesses in the healthcare, banking, manufacturing, telecommunication, and retail sectors and industries. Its tenure has enabled it to deploy industry-specific solutions.
• Upward Overall Historical Stock Price Growth: IBM is a dividend-paying large-cap stock. Recent stock performance might be mixed with periods of growth driven by its strategic pivot to then-emerging technologies. The overall historical growth of its stock price since 2000 was impressive and it has seen relatively stable movements since 2015. These make it a value stock that is ideal for value investing.
• Opportunities From Tech and Expanding Markets: Investing in IBM can also mean investing in technological progress. The company has been involved in the deployment of solutions based on artificial intelligence. The markets for cloud and edge computing, enterprise IT infrastructure, and AI are also expected to grow due to the growing needs of its existing client base and the expansion of its target customers.
Cons: IBM Stock Disadvantages
Some have considered IBM as a legacy tech giant. It has failed to be considered as one of the Big Five tech companies in the United States which is currently composed of Alphabet or Google, Amazon, Apple, Meta Platforms, and Microsoft. Remember that it has no retail market presence anymore. The diverse product portfolio of the company also means that competes with other established tech giants and other tech companies with specialized service or solution offerings. The following are the disadvantages of investing in IBM stock:
• Bureaucratic Processes and Slow Decision-Making: The expansive size and complex structure of the company can be a disadvantage because these characteristics create a more bureaucratic environment that can impair progress in research and development and slow decision-making activities. It has been criticized for being slow to adapt to market changes and for failing to move quickly enough to capture market shares.
• Legacy Business Issues and Increasing Competition: Its hardware business involved in mainframes and servers suffers from declining demand due to increasing competition from other companies offering substitute solutions. The company has transitioned to these substitutes but take note that it competes with Amazon and Microsoft for cloud computing and with Oracle and SAP for more specialized enterprise solutions.
• Challenges in Acquiring and Retaining Employees: Companies like Amazon, Google, Microsoft, and Tesla are offering substantial salaries and benefits packages. Emerging ones like OpenAI are also disrupting the labor market with their competitive packages. Failure to acquire and retain relevant and skilled talents can affect its existing competitive advantage and its ongoing and future research and development pursuits.
• Not Ideal For Growth Investing Due Limited Growth: Another disadvantage of IBM stock is that it is not a growth stock and it is unsuitable for growth investing based on its historical stock performance. Remember that it is currently considered as a value stock due to the stable movements in its stock price for the last 10 years. This makes it unideal for investors who are looking for substantial capital appreciation.
• Susceptible to Market and Technological Disruptions: The company is also exposed to market disruptions due to the competitive edge of companies like Amazon and Microsoft and the emergence of newer companies that can offer the same services and solutions at a lower price. The company is also at risk of losing relevance due to the disruptive nature of emerging technologies like hybrid computing and artificial intelligence.
