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Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

IBM - Investing in AI Machine Intelligence Stocks

Companies / AI May 25, 2019 - 06:21 PM GMT

By: Nadeem_Walayat

Companies

Where to invest to profit from the exponential machine intelligence mega-trend. I have ranked these stocks in in terms of risk vs reward and volatility. Do remember that when investing in the stock market that your capital is at risk. There are NO SURE BETS!

If you've not already done so then watch my following video from November 2016 which illustrates why everything will start to change exponentially by 2022.


Machine Intelligence has become a broad church that has fragmented or branched off into a myriad of sectors and the number keeps expanding every year. Many years ago I broke the machine intelligence mega-trend down into 9 key sectors that I have now further fragmented into 10 by basically adding Cyber Security as the following list illustrates, the 10 key machine mega-trend sectors to invest in.

Machine Intelligence Investing Mega-trend

For a primer on how to invest in AI Stocks then see my following recent video:

How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend

Top 10 AI Stocks

The stocks are ranked in order of priority. Also to further break down the list, I consider the first 5 stocks as PRIMARY i.e. the most important. The next 3 as of SECONDARY importance and finally 2 far more risky TERTIARY stocks.

The stocks analysis is being published in reverse order (10 to 1) as this analysis has first been made available to Patrons who support my work: https://www.patreon.com/posts/top-10-ai-stocks-25779914

So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.

7. IBM

IBM or Big Blue as it used to be called is unfortunately prone to making huge blunders from time to time such as failing to realise that the real enemy was Microsoft not Apple! I bet few remember OS2 created for IBM by Microsoft well all that money paid to Microsoft to develop OS2 directly resulted in the far superior Windows operating system. And so Microsoft went on to BECOME IBM. Another blunder was failing to compete for the desktop PC's market because IBM was a mini computer company. Unfortunately the desktops put IBM's minis out of business and so IBM became history as since the early 1980's has consistently been a tech under performer. However, now AI may offer IBM the possibility of riding the machine intelligence mega-trend back to computing dominance as I am sure you will all have heard of Watson, IBM's Deep Mind AI project that has featured in countless TV appearances.

The thing is IBM is good in terms of big hardware projects and not so good in terms of software projects. Thus IBM could well be positioned to leap frog the rest via it's machine learning development projects such as IBM's cloud based Quantum Computing services basically making the development of smart phones and other smart devices obsolete as the processing power would be in the cloud rather than on the device.

So I am basically including IBM in my Top 10 AI stocks not because of its previous track record in delivering stock price gains but rather it has the potential to WIN the AI race via Quantum Computing. So bare that in mind when looking at it's past performance.

IBM Financials

Current Price $141  
Market Cap $125.6bn  
Enterprise Value $159.6bn  
Total Cash $12bn  
Net Income $8.72bn  
P/E Ratio 14.84  
Forward P/E 10  
Dividend Yield 4.45%  
Sales Growth 0.6%  
Price to Sales Ratio (lower better) 1.31  
Price to Cash Flow Ratio (lower better) 6.83  
PEG Ratio (lower better) 10.5  
Debt to Equity (lower better) 272.8  
Stock Price 3 Year Change 6%  
Ratio to S&P 15%  

 

IBM Saddled with debt, virtually no sales growth, a crazily high PEG of over 10! On the plus side investors get a good reliable dividend yield. So basically it's current performance is not particularly bullish for the stocks prospects.

Trend - Again IBM's past performance has been abysmal, showing a gain of just 6% over the past 3 years! About 1/6th that of the S&P. And even what little growth there is has been is at great volatility that has seen the stock price fall from $168 to $100 before recovering to stand at $141. Furthermore the stock price trend is not particularly inline with the S&P. So IBM in technical chart terms does not look particularly appealing.

Long-term Investing - IBM's basically gone nowhere for the past 7 years! Even Warren Buffett gave up on his stake in 2018. So in terms of past performance IBM has failed to deliver. However that's ignoring the 4.45% dividend yield. So one should view IBM in terms of paying a decent dividend rather than on expectations for regular capital appreciation. It's just that it's got the potential to beat the rest. Otherwise you earn a small dividend.

Conclusion - In my opinion IBM is a low risk gamble. Your basically gambling that their Quantum Computing tech pays off. Otherwise you get to earn a dividend and maybe some capital growth. Obviously if you were only to buy ONE AI stock then IBM would NOT be that stock, but it is fine as part as a portfolio of stocks.

Again this the whole of this analysis has first been made available to Patrons who support my work: https://www.patreon.com/posts/top-10-ai-stocks-25779914

So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.

Your analyst

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2019 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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