International Business Machines (IBM) stock price retreated sharply today, June 18, continuing a downward trend that started on June 2nd this year. It plunged to $245.8, down by 26% from its highest point this month.
IBM stock slumps after Accenture’s weak earnings
IBM shares were in the red today, after Accenture (ACN), a top global IT consulting company, published weak financial results and forward guidance, pushing its stock to crash by 17%. It now expects that its revenue growth will be between 3% and 4%, lower than the earlier forecast of between 3% and 5%.
At the same time, Accenture predicted that its annual revenue will be between $17.75 billion and $18.4 billion. Analysts were predicting that its annual revenue will be $18.47 billion.
While IBM and Accenture have different strategies, some of their businesses are alike. The most important one is IT consulting, where they help companies modernize their technology and reduce costs.
Therefore, Accenture’s weak earnings provide further evidence that the consulting industry is in the early stages of disruption by AI tools. The theory is that some companies will save money by using AI automation to handle some of the work that these companies do.
IBM shares have also dropped because of its presence in the embattled software business, which has stalled amid the ongoing SaaSApocalypse fears. These fears have made companies like Atlassian (TEAM), Adobe (ADBE), and Workday (WDAY) to be the worst performers in the S&P 500 Index.
IBM’s growth has largely stagnated
IBM, which was once the biggest technology company in the world, has lagged behind its top peers in the past few years. For example, while companies like Microsoft (MSFT) and Amazon (AMZN) are recording double-digit growth, IBM is in the single digit territory.
For example, IBM shares retreated by over 10% in a single day in May when it published its financial results. Its revenue rose by 9% to $15.9 billion, while its pre-tax income margin improved marginally to 8.7%.
IBM’s consulting business, which it competes with Accenture, rose by just 4%, while its softwares segment grew by 11%. Its software growth was driven by the data and hybrid cloud segments.
Analysts expect that IBM’s business will continue slowing in the coming years. The average estimate is that its annual revenue will grow by 5.83% this year to $71.47 billion. It will then grow by 4.4% in the following year to $74.64 billion.
Despite this growth, there are signs that IBM is not all that cheap, especially when compared with other faster-growing firms. It has a forward PE ratio of 25, higher than Nvidia's (NVDA) 21 and Micron's (MU) 17.
IBM share price technical analysis
International Business Machines chart | Source: TradingView
IBM shares have tanked in the past few weeks, moving from $322 to $244 today. It has slumped to its lowest level since May 21 this year and formed a down-gap.
The stock also dropped below the 50-day and 100-day Exponential Moving Averages (EMA). Also, the two lines of the Percentage Price Index (PPI) have formed a bearish crossover and are pointing downwards.
Therefore, technicals suggest that the stock will drop further, potentially to last month’s low of $212. However, there is also a possibility that it will rebound as investors buy the dip and attempt to fill today’s gap.
Comments
Log in or sign up to join the conversation.