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Investing in IBM Stock in 2020: What You Need to Know


May. 26 2020, Updated 11:46 a.m. ET

IBM (NYSE:IBM) stock has had a rough time this year. The coronavirus outbreak made the situation worse. At $118 per share, IBM has fallen 10% in 2020. In comparison, Microsoft (NASDAQ:MSFT) has risen 16% for the year, while Apple stock has risen 8.6% for the year.

Last month, Arvind Krishna took over as IBM’s CEO. Prior to the promotion, Krishna helmed IBM’s cloud computing division. Notably, cloud computing has become a priority for IBM as it seeks to turnaround its fortunes. The company has been struggling to grow its sales lately. IBM’s revenue fell 3.4% in the first quarter of 2020. However, the company hopes that a break in the cloud market will make a big difference.

Here are two things that you need to know if you’re investing in IBM stock.

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IBM stock trades at a 25% discount

IBM has cut several thousand jobs as it seeks to shed some costs. The company finished 2019 with 350,000 full-time employees globally. The latest job cut will be the first under Krishna as the chief executive. While delivering the first-quarter financial report last month, IBM estimated that actions, like workforce reduction, would allow it to save about $2.0 billion in costs annually.

IBM’s latest layoff comes as the stock has pulled up 30% from its pandemic lows of $90 reached in March. Notably, the stock rebounded after IBM’s first-quarter EPS was above the consensus estimate. The stock also rebounded after the company raised its regular quarterly dividend to $1.63 per share from $1.62 a year ago. The dividend is payable on June 10.

IBM looks to cloud computing for turnaround

IBM’s decision to tap its cloud head Krishna as the chief executive speaks to the company’s big bet on cloud computing to turn around its fortunes. Currently, IBM trails Amazon (NASDAQ:AMZN), Microsoft, Google (NASDAQ:GOOGL), and Alibaba (NYSE:BABA) in terms of cloud market share. However, the company continues to make a strong campaign for cloud revenue.

IBM acquired Red Hat to bolster its cloud business. The efforts are starting to work. The company reported a 23% year-over-year jump in cloud sales to $6.8 billion in the first quarter. The global cloud market presents a $266 billion revenue opportunity this year for IBM and other vendors.

IBM stock has risen 1.4% since the company’s first-quarter revenue showed strong growth in the cloud business. At this point, IBM trades at a 25% discount to its 52-week peak of $158.


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