IBM Gets Ready for its Next Breakaway Rally

I love this situation.

An AI stock that the market doesn’t pay attention to is getting ready to break to new all-time highs. It’s not Nvidia (NVDA) or Super Micro Computer (SMCI) or Amazon (AMZN) - it’s lowly, old International Business Machines, A.K.A IBM.

A few months ago, we talked about IBM’s bullish trend as the stock was a “Sleeper AI Stock.”

Now, IBM’s stock is setting up for another rip higher, and I haven’t heard anything about it on the financial news channels - and we like it that way.

Yesterday, the company announced that it was laying off a small portion of its marketing & communications businesses. The move affected a “low single digit percentage” of employees to focus more on the rollout of IBM’s AI services.

The news, though small, saw IBM’s stock surge another 3% yesterday, pressing against the $200 level for the first time.

Shares are now poised in the starting blocks of their next rally that should kick off when the stock crosses that $200 level. Here’s why.

ibm stock chart

(Click to enlarge)

The company is set to announce their earnings on April 24. Write this down… we’re likely to see one of the largest “buy the rumor” rallies ever in the AI space this quarter, including IBM.

Analysts are now waking up to the shift in IBM’s business model and how it will leverage AI in the service industry starting this year. That means more upgrades to their outlook and price targets, a huge catalyst for the stock.

The move above $200 represents a break above a psychologically significant number. Investors love to buy stocks that move through the “century” prices. IBM shares ran 28% higher immediately after breaking through $100 in 2021. It won’t be any different for IBM this time around.

Finally, the earnings. Right now, I’m considering the pre-earnings rally to be fruitful, but IBM’s post-earnings trends have been improving as well.

Last quarter we saw shares move 20% higher after the company bested analyst expectations. One reason that IBM is an AI Sleeper is that the analysts are still trying to adjust their outlooks and expectations for the stock. This means next quarter’s results are likely to outperform again, adding to the rally’s strength.

What could go wrong?

Right now, IBM’s risk lies with the market.

A hard reversal for stocks will include profit-taking on IBM as shares have outperformed the market.  Shares have returned three times that of the tech-heavy Nasdaq 100, so we would see an exaggerated move lower if/when the market corrects.

Bottom Line

I’ve spent the last six months expanding the holdings of my own “AI Portfolio.”  Names like Amazon, Nvidia, Super Micro, etc… you know, the technology that makes AI happen.

They’re the easy ones, but IBM looks to be building itself to be a leader in the upcoming AI Services Boom, and its stock is still priced way too low for that role.

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About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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