IBM Seeks to Benefit from Increased Interest in the Tech Space
The cloud dominates information technology spending
Earlier in this series, we discussed how IBM’s (IBM) strategy shift that failed to contribute to its top-line growth weighed on its stock. IBM continues to invest in Strategic Imperatives, which is highlighted by the cloud. Gartner expects enterprise software spending to grow 8.6% to $326.0 billion in 2017.
Information technology spending is expected to shift toward public cloud offerings from traditional IT systems, leading to high growth through 2021. IT spending is expected to grow at a CAGR1 of 15.9% to $436.4 billion.
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Through 2021, growth rates are expected to fall slightly. IBM (IBM), Microsoft (MSFT), Oracle (ORCL), and Google (GOOG)—all leading players in the cloud space—could also benefit from this trend. IBM’s leadership in the hybrid cloud space would also benefit the company.
Technology sector’s outperformance
The technology sector, which is dominated by the players mentioned above, has emerged as an attractive industry for investment in the past few years.
In 2017, the technology sector lifted the S&P and the Dow Jones, and both indexes recorded eight straight quarters of gains. The S&P 500 information technology sector has risen ~29.6% year-to-date.
In 2017, the Technology Select Sector SPDR ETF (XLK) has provided a return of 24.3% year-to-date. XLK’s return is significantly higher than the S&P 500, the Dow Jones Industrial Average, and the NASDAQ Composite returns of 13.6% 15.2%, and 22.2%, respectively.
The outperformance of Apple (AAPL), Facebook (FB), Alphabet (GOOG), and Amazon contributed to the massive gains in the technology sector. The chart above shows the IT sector’s performance in comparison to other sectors, ETFs, mutual funds, bonds, and oil.
The technology sector is benefiting from the increased adoption of the cloud, AI (artificial intelligence) offerings, augmented/virtual reality devices, and IoT-related (Internet of Things) software.
- compound annual growth rate ↩