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Is Exiting Facial Recognition Business Good for IBM Stock?


Jun. 9 2020, Updated 1:23 p.m. ET

IBM (NYSE:IBM) stock has registered a remarkable recovery from the coronavirus-driven sell-off. The company decided to pull out of the facial recognition technology business. Notably, IBM stock has risen 12% over the past month. Now, the stock is in the green for the year. At one point, IBM shares were down more than 30% for the year amid the pandemic-driven fallout in the stock market.

Exiting the facial recognition business is part of IBM’s rejection of technology that could be used to advance discrimination and racial injustice. Also, the company’s move comes in the wake of George Floyd’s killing at the hands of police in Minneapolis.

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Floyd’s death has renewed the racial equality debate and the clamor for police reform. In a letter to Congress on Monday, IBM CEO Arvind Krishna detailed the company’s support for racial justice and police reform. Facebook and Apple are other technology companies that support racial justice. The companies made donations to racial justice organizations in the wake of Floyd’s killing.

IBM stock and dropping out of the facial recognition business

IBM stock rose 2.80% after the company announced its decision to get out of facial recognition software. Overall, the past few weeks have been great for IBM stock, which has pulled up strongly from its pandemic lows. At about $136 per share, the shares have risen 50% from their pandemic lows of $90 reached in March.

Notably, IBM’s rebound from the pandemic sell-off comes after fairly good first-quarter earnings results. The company delivered an adjusted EPS of $1.84, which beat the consensus estimate at $1.80. The revenue of $17.6 billion matched the consensus estimate. IBM shares have risen 13% since the company’s earnings report on April 20.

According to CNBC, the facial recognition business that IBM ditched doesn’t generate significant revenue for the company. The move should have a negligible impact on the company’s financial results and stock.

IBM wants to focus on the cloud business

Ditching the facial recognition business could actually help IBM stock. For example, the company will be able to shift its resources from a slow and controversial business to more promising operations. IBM identified the cloud as a key business. Indeed, the cloud presents a lucrative revenue opportunity. The global public cloud market is on course to grow to $355 billion in 2022 from $228 billion in 2019. IBM already ranks as one of the world’s largest cloud companies alongside Amazon, Microsoft, Google, and Alibaba.

Investors have welcomed IBM’s cloud bet. Despite the pandemic sell-off, IBM stock has spotted about a 15% gain since it acquired Red Hat to bolster its cloud business. As Amazon’s results have shown, the cloud is a lucrative business.


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