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The Stocks: International Business Machines (IBM) yields nearly 3% and is pivoting toward AI and quantum computing with recent partnerships, including Arm Holdings for dual-architecture enterprise hardware.
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AI investors seeking dividend income face limited options among semiconductor and software plays after years of appreciation, making IBM’s near-3% yield and depressed 21.5x P/E multiple attractive.
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For AI investors who want to get paid a nice cash dividend to wait, there’s not all too much to pick from on the market these days, especially after the multi-year ascent in the semi plays. Undoubtedly, Broadcom (NASDAQ:AVGO) used to be a dividend staple before it went on a multi-bagger run. It’s hard to even envision the king of custom silicon yielding more than 5% in the depths of 2020. Nowadays, the name yields a mere 0.68%, putting it in the middle of the pack with some of the hyperscalers.
While the shot at a high yield and even higher capital gains might be slimmer today than before ChatGPT went live in late 2022, I do think there are some underrated names with above-average yields that might also be due for some capital appreciation.
Whether such a rally could compress the yield below 1%, as was the case with Broadcom, though, remains the big question. In my view, shares of International Business Machines (NYSE:IBM) still look like a worthy pick while the yield is hovering just shy of 3% again following its latest bearish drop.
READ: The analyst who called NVIDIA in 2010 just named his top 10 AI stocks
Qualcomm (NASDAQ:QCOM) is another compelling candidate that might have what it takes to make up for lost time as AI agents start doing some of the heavy lifting for the economy. Though both companies are under a bit of pressure, I find International Business Machines to be one of the better deals for investors keen on a yield that’s near the 3% mark.
Despite rolling through a rough patch in the past year, International Business Machines’ stock is still a compelling AI wild card play as the firm moves ahead with agents and quantum computing. Of course, quantum and AI may go hand in hand in just a few years’ time. As International Business Machines gets more aggressive with its agentic shift while teaming up to improve its footing in the AI race, I think the latest drop might offer a compelling contrarian opportunity for those seeking the perfect mix of dividend growth and raw capital appreciation.
Whether it’s the latest partnership with Arm Holdings (NASDAQ:ARM) for work on dual-architecture hardware for the enterprise, or under-the-radar acquisitions (think HashiCorp and Confluent) that could help International Business Machines get further down the AI highway, I do think International Business Machines still has what it takes to get back on the growth track.
Of course, the billion-dollar question is how much more of a disruptive shock Anthropic will apply to the legacy software plays. Anthropic’s answer to International Business Machines’ COBOL might act as a gut-punch. And it’s tough to say whether there are more such innovations that could cause shareholders to hit the panic button if the software sell-off isn’t quite over yet.
International Business Machines is moving fast with AI, but as AI-native firms look to make money within the enterprise, questions linger as to whether some pieces of software are on their way out. Personally, I think software has staying power, but moats are getting narrower.
And, with that, I’m not so sure how much pricing power the incumbents will be left with. Either way, International Business Machines is pivoting towards AI and quantum, two fields that matter most. On the quantum front, the firm certainly has a chance to emerge as a leader in the coming decade.
As some analysts lower their price targets on the name amid weakness, I’d be inclined to give the name a closer look, especially as its quantum milestones are overlooked. Sure, quantum won’t start paying the bills tomorrow in a climate that demands ROI. But the firm is arguably already making good use of quantum. The firm noted its tech can simulate magnetic materials.
How long before a pretty cool application turns into a game-changer? Time will tell. In any case, I think the 21.5 times trailing price-to-earnings (P/E) multiple is in a depressed spot as the firm heads into its next quarterly earnings report next week with a fairly low expectations bar to pass.
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