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bongy
2023-02-16
Agreed!
Google: Ignore The Noise, Its AI Is 3X Larger Than ChatGPT
bongy
2021-07-25
Good
Is IBM Stock Undervalued Or Overvalued? What To Consider
bongy
2021-07-24
Cool
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14:03","market":"us","language":"en","title":"Google: Ignore The Noise, Its AI Is 3X Larger Than ChatGPT","url":"https://stock-news.laohu8.com/highlight/detail?id=2311646394","media":"Seekingalpha","summary":"SummaryGoogle recently showcased its PaLM language model in response to ChatGPT. Its product made a ","content":"<html><head></head><body><h3>Summary</h3><ul><li>Google recently showcased its PaLM language model in response to ChatGPT. Its product made a "mistake", but I believe this was minor and overblown by the mainstream media.</li><li>Google's PaLm language model is close to 3 times larger than GPT-3, at a staggering 540 billion parameters, versus GPT-3 at 175 billion parameters.</li><li>Alphabet's stock is undervalued intrinsically according to my forecasts and discounted cash flow valuation model.</li></ul><p>Google or Alphabet has recently been in the headlines after the company was left playing catch up after Open AI's ChatGPT, went viral. Google called a "code red" and hastily showcased its PaLM AI system. This was meant to silence concerns that Google was "left behind". However, after the model made a mistake in answering a question...the company was left red faced. Its share price plummeted by over 7% in a day or wiping ~$100 billion from its market capitalisation. However, before you go and sell Google stock and join the rest of the herd, let's get some facts. Firstly, Google has been working on AI for decades and created the "Transformer AI" architecture (which ChatGPT is built on!). Secondly, the "mistake" its PaLM model made was extremely minor and blown out of proportional by the mainstream press. Finally, Google's PaLM model is ~3 times larger than Open AI's GPT-3 by parameter number. In this post I'm going to break down the known facts regarding the AI models (from scientific papers), before diving into the intrinsic valuation of Google stock.</p><p><img src=\"https://static.tigerbbs.com/d2540a811b87b79c3ab5e4254fa3472e\" tg-width=\"635\" tg-height=\"417\" referrerpolicy=\"no-referrer\"/>Data by YCharts</p><h2>ChatGPT Vs Google PaLM</h2><p>As mentioned in the introduction, ChatGPT or the underlying (GPT-3 model) has received all the "hype", whereas Google's PaLM model is much larger. According to a graph I have annotated from a Stanford cited scientific paper. Google's PaLM has a staggering 540 billion parameters versus GPT 3 at "just" 175 billion parameters. Thus Google's system has close to 3 times (2.97x) more parameters which is huge. In addition, Google pioneered the "Transformer" AI architecture in 2017, which is the fundamental system PaLM and even GPT-3 is built upon. The company does have a habit of releasing its cutting edge research to forward the progress in science. Its brand is respected for this, but moving forward I believe the company should keep its cards close to its chest to avoid opening up to competitors, as in the case of ChatGPT and now Microsoft, which I will discuss more about later.</p><p><img src=\"https://static.tigerbbs.com/97c37d36c2f2fffe607b57546db85065\" tg-width=\"640\" tg-height=\"500\" referrerpolicy=\"no-referrer\"/></p><p>Large Language Models (Stanford cited research paper)</p><p>Next you may ask, if Google's system is much larger, why did it make a mistake? To answer this let's analyse the "mistake", because mainstream news often doesn't explain the details. Below you can see a screenshot of the "mistake". The prompt question asks "What new discoveries from the James Webb Space Telescope can I tell my 9 year old about?". The third answer (which I've highlighted red), says "JWST took the very first pictures of a planet outside of our own solar system". This is not correct, as the first pictures of these "exoplanets" were taken by the European southern observatory's telescope in 2004, as confirmed by NASA.</p><p><img src=\"https://static.tigerbbs.com/0d5d7d7748258f662bdb825df8258093\" tg-width=\"640\" tg-height=\"254\" referrerpolicy=\"no-referrer\"/></p><p>Google PaLM Mistake (Google Presentation author screenshot)</p><p>Overall, I don't deem this "mistake" to be major and was definitely blown out of proportional by the media, thus its stock sell off was likely unjustified. In fact, upon further research I discovered that Google search also makes the same "mistake". I believe this is because, the James Webb Space Telescope "first took" images of planets outside of our Solar system in 2022, but was not the first to do so. Thus it is simply a word mix up and in fact one could argue that the answer is not actually a mistake. As the prompt asked specifically for "new discoveries", by the JWST which led to the answer.</p><p><img src=\"https://static.tigerbbs.com/ecba11e4bc1335d123abc1144694f10a\" tg-width=\"640\" tg-height=\"563\" referrerpolicy=\"no-referrer\"/></p><p>Google Search James Webb Telescope "mistake" (Author Google Search)</p><p>It also makes sense to remember ChatGPT has made many mistakes in the past and these are widely known across the internet. For example the below prompt asks "who can create a petition on the UK government e-petitions system". ChatGPT answers "anyone", when in reality one must be a British citizen or resident for obvious reasons. In addition, ChatGPT's training data only goes up to 2021. For example, ChatGPT doesn't know Argentina won the world cup in 2022. Interestingly, we did not see many of ChatGPT's mistakes impact Open AI negatively, in fact Microsoft (MSFT) went onto to invest $10 billion into the business.</p><p><img src=\"https://static.tigerbbs.com/83d8652580bc0720c00e6b25267ac4b3\" tg-width=\"640\" tg-height=\"460\" referrerpolicy=\"no-referrer\"/></p><p>ChatGPT mistakes (Jerry Fishendens)</p><p>I believe the difference in positive/negative media coverage has really been all about expectations. Society has a high expectation of Google and the company has a huge amount of responsibility, when compared with a startup such as Open AI, which effectively had nothing to lose by releasing its system to the public in November 2022.</p><p>Google could have released its PaLM model much earlier, as it was announced in April 2022. However, the company has held back for a variety of reasons, from accuracy to safety and bias. Google has a reputation to maintain and thus must ensure its system is immensely accurate before release or its brand would be damaged. In the short term this meant the company has lost out on "hype", but long term it should be better for the platform (as long as they don't wait too long). In addition, the safety element is important as the language model needs to ensure it doesn't entice acts of violence, suicide or even help others plot crimes, hack into systems etc.</p><p>Bias is also an interestingly area, as often these models may contain lots of stereotypical information regarding religion and races, which could be offensive to others. Then of course we have "explainability", which is the ability of the model to explain how/why it came up with certain answers. Following on from this I noticed a gaping hole in the ChatGPT system. The system doesn't offer the "source" of any of its information. This means for it to be used as a "search engine" there could be law suits in the pipeline. For example, ChatGPT is "trained" on all the blog posts ever written on the internet, but doesn't credit the authors. In the traditional search world, when you reference another blog, most people then cite a source (through a backlink). This then gives credit to the original source, while also boosting their website "domain authority" and thus in turn making it more likely to "rank" higher on Google. This system works because the backlinks help generate more website traffic (through rankings), which can then be monetised through adverts and product sales. For example, I have written over 300 blog posts on Seeking Alpha, which has generated millions of views of website traffic and thus a portion of this can be monetised. If a large language model simply scraped this information with no author credit, then there would be no incentive for bloggers to write long term, which would effectively cause the internet's information to be stunted. Then of course we have plagiarism. I have tested ChatGPT to write mini blog posts on topics and upon running it through a plagiarism checker, copying was detected. Thus this means author credit issues, copyright infringement etc.</p><p>A positive for Google is the company's core business is internet search, thus the business has a greater chance of introducing sources for data and explainability into its models. In fact this type of technology is called "retrieval based NLP" and is really an extension of traditional search. From the graphic below from a Stanford lecture (sorry about the blur), you can see a question was asked then multiple sources were "scored", before being synthesised into a single answer with links.</p><p><img src=\"https://static.tigerbbs.com/b06be1170f96dd1c49edce2ef0c81b51\" tg-width=\"640\" tg-height=\"749\" referrerpolicy=\"no-referrer\"/></p><p>Retrieval Based NLP (Stanford lecture author screenshot)</p><p>Microsoft "feels" ahead of Google in generative AI after its $10 billion investment into Open AI and its announced plans to integrate into Bing, Microsoft Edge and other Microsoft products. However, upon closer inspection after visiting Bing and downloading the new "AI powered" edge browser I still found this to be in beta mode and I had to join a waitlist.</p><p></p><p><img src=\"https://static.tigerbbs.com/ed63e1011efab437baae1f6cbafbd38f\" tg-width=\"640\" tg-height=\"233\" referrerpolicy=\"no-referrer\"/></p><p>Bing Generative AI Waitlist (Feb 13th 2023)</p><p>Bing/Microsoft Edge does enable a few stock answers to be given alongside search results, which is pretty messy (in my opinion) and the full functionality is still in the "waitlist" phase. Thus I wouldn't worry about Bing stealing too much market share from Google anytime soon. In fact, it may actually harm its share as users will likely visit Bing because of the AI hype but then be left disappointed (such as myself). Ironically, in the search term example Bing highlights it ranks a YouTube video at the top (which is owned by Google of course) and is the largest video search engine in the world.</p><p></p><p><img src=\"https://static.tigerbbs.com/22d3f73fddc4ce65f0d1371b8f4b6f6c\" tg-width=\"640\" tg-height=\"407\" referrerpolicy=\"no-referrer\"/></p><p>Bing Specific Search Generative AI (Bing)</p><p>I also did a review of the Google search website traffic versus Bing. Over the past three months Google has generated a staggering 259.8 billion website visits, which is astonishing. Whereas, Bing has generated "just" 3.464 billion website visits between November 2022 and January 2023. Interestingly enough the estimate shows Bing's search traffic actually dipped slightly from 1.16 billion visits in December 2022, to 1.148 billion in January 2023. As mentioned above, I am expecting a rise in February but if Bing doesn't show something unique and special, I doubt it will cause a significant shift in users.</p><p><img src=\"https://static.tigerbbs.com/a7280a48cd5ca947d6a584ca3f5ede74\" tg-width=\"640\" tg-height=\"204\" referrerpolicy=\"no-referrer\"/></p><p>Bing vs Google Search Website traffic (author annotation similarweb data)</p><h2>Valuation and Forecasts</h2><p>In my previous post on Google I covered its quarterly financials for the fourth quarter of 2022 in detail which you can review. Thus in this post I will just hop straight into the valuation. I have forecast 4% revenue growth for "next year" which in my model refers to the next four quarters. This is conservative but still slightly greater than the 1% year over year growth reported in Q4,22 at $76 billion. However, it should be noted its growth was mostly impacted by an eye watering $3 billion foreign exchange rate headwind. As on a constant currency basis, revenue actually increased by 7% year over year. The U.S dollar has started to correct down relative to the Euro very recently and thus I don't deem its impact will be as negative in 2023. This is also 1% lower than my previous post as I forecast short term competition headwinds from the new AI developments with Bing.</p><p>For years 2 to 5, I have forecast a greater 11% revenue growth per year, this is a 2% increase per year over my prior valuation model estimates. I forecast this to be driven by an improvement in the cyclical advertising market, as well as continued growth in its Cloud business which grew revenue at a solid 32% YoY in Q4,22, generating $7.3 billion. I also expect Google to improve the monetization of its popular YouTube Shorts format (TikTok equivalent), after initial technical challenges.</p><p><img src=\"https://static.tigerbbs.com/9eaf837d2fc9bf7224aae3e74817dcc6\" tg-width=\"640\" tg-height=\"300\" referrerpolicy=\"no-referrer\"/></p><p>Google stock valuation 1 (created by author Deep Tech Insights)</p><p>I have capitalized the company's R&D expenses which has boosted net income. In addition, I have forecast a 33% operating margin over next 6 years, this is 1% higher than the prior forecast given AI tailwinds which I believe will drive extra revenue, once Google formally releases its PaLM AI product to the public. This may seem overly confident but the company has achieved a similar margin before in Q3,21. I forecast this to be driven by the aforementioned factors included Cloud business growth, advertising market rebound and enhanced revenue from subscription services such as YouTube premium.</p><p><img src=\"https://static.tigerbbs.com/e3c15abbb8d8b5e48ff8c68b02a101ea\" tg-width=\"640\" tg-height=\"442\" referrerpolicy=\"no-referrer\"/></p><p>Google stock valuation 2 (created by author Deep Tech Insights)</p><p>Given these forecasts I get a fair value of $145/share, the stock is currently trading at $95/share at the time of writing and thus it is over 34.6% undervalued, according to my forecasts and model.</p><p>As an extra datapoint, Alphabet trades at a forward P/E ratio equal to 18.42, which is over 31.6% cheaper than its 5 year average.</p><p><img src=\"https://static.tigerbbs.com/b5f382e0f63fa3d352f4f9266f9c4253\" tg-width=\"635\" tg-height=\"417\" referrerpolicy=\"no-referrer\"/>Data by YCharts</p><h2>Risks</h2><h4>Competition/GPT/Microsoft</h4><p>Google has dominated the search and advertising industry for decades, but now it's facing competition. As mentioned prior Microsoft's has invested $10 billion into ChatGPT and CEO Satya Nadella believes the Microsoft Edge browser can now be reborn. On an advertising front Microsoft has partnered with the world's largest streaming provider Netflix (NFLX), as its official advertising partner, which signals Microsoft's push into the advertising market.</p><p>On a technical front Microsoft (with Nvidia) has created a huge natural language model dubbed the "Megatron-Turning", which has 530 billion parameters. This is 10 billion parameters less than Google's PaLM, but still pretty close. We do have the upcoming GPT-4, which many believed would be a 10X improvement with over 1 trillion parameters. However, when ChatGPT is asked the figure is closer to 175 billion parameters. Thus there is definitely misinformation going around and Open AI CEO Sam Altman debunked many of these myths. At a StricklyVC event, Altman stated that</p><blockquote>“The GPT-4 rumour mill is a ridiculous thing, I don’t know where it all comes from. It has been going for six months at this volume"</blockquote><p>He also believed the hype was overblown for ChatGPT and was genuinely surprised by the viral reaction. For extra information, Google search queries are incredibly cheap for the company with the cost estimated to be one fifth of a cent. However, natural language model queries are estimated to cost ~5 times more in infrastructure expenses, according to Morgan Stanley analyst, Nowak. Therefore if half of Google's (3.3 trillion) queries were converted over to natural language models this could result in an extra $6 billion in costs. A positive for Google is I believe natural language queries will create more unique queries with different use cases in aggregate, thus the net benefit will be positive, as I've indicated in my long term model.</p><h2>Final Thoughts</h2><p>Google is a tremendous technology company with a strong culture of innovation. I believe ChatGPT is a great "product" and Open AI managed to capture the initial excitement (and training data) of consumers. However, Google has been a pioneer in the AI space for decades and when it comes to search engine integration I believe the company has an edge. The advertising market is going through a cyclical downturn right now and its PaLM model "mistake' was definitely overblown. Given Google's stock is undervalued intrinsically (according to my forecasts and model) I believe this is just another greater buying opportunity for long term investors.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Google: Ignore The Noise, Its AI Is 3X Larger Than ChatGPT</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nGoogle: Ignore The Noise, Its AI Is 3X Larger Than ChatGPT\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-02-16 14:03 GMT+8 <a href=https://seekingalpha.com/article/4578575-google-ignore-noise-ai-3x-larger-than-chatgpt><strong>Seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryGoogle recently showcased its PaLM language model in response to ChatGPT. Its product made a \"mistake\", but I believe this was minor and overblown by the mainstream media.Google's PaLm language...</p>\n\n<a href=\"https://seekingalpha.com/article/4578575-google-ignore-noise-ai-3x-larger-than-chatgpt\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"GOOGL":"谷歌A","GOOG":"谷歌"},"source_url":"https://seekingalpha.com/article/4578575-google-ignore-noise-ai-3x-larger-than-chatgpt","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2311646394","content_text":"SummaryGoogle recently showcased its PaLM language model in response to ChatGPT. Its product made a \"mistake\", but I believe this was minor and overblown by the mainstream media.Google's PaLm language model is close to 3 times larger than GPT-3, at a staggering 540 billion parameters, versus GPT-3 at 175 billion parameters.Alphabet's stock is undervalued intrinsically according to my forecasts and discounted cash flow valuation model.Google or Alphabet has recently been in the headlines after the company was left playing catch up after Open AI's ChatGPT, went viral. Google called a \"code red\" and hastily showcased its PaLM AI system. This was meant to silence concerns that Google was \"left behind\". However, after the model made a mistake in answering a question...the company was left red faced. Its share price plummeted by over 7% in a day or wiping ~$100 billion from its market capitalisation. However, before you go and sell Google stock and join the rest of the herd, let's get some facts. Firstly, Google has been working on AI for decades and created the \"Transformer AI\" architecture (which ChatGPT is built on!). Secondly, the \"mistake\" its PaLM model made was extremely minor and blown out of proportional by the mainstream press. Finally, Google's PaLM model is ~3 times larger than Open AI's GPT-3 by parameter number. In this post I'm going to break down the known facts regarding the AI models (from scientific papers), before diving into the intrinsic valuation of Google stock.Data by YChartsChatGPT Vs Google PaLMAs mentioned in the introduction, ChatGPT or the underlying (GPT-3 model) has received all the \"hype\", whereas Google's PaLM model is much larger. According to a graph I have annotated from a Stanford cited scientific paper. Google's PaLM has a staggering 540 billion parameters versus GPT 3 at \"just\" 175 billion parameters. Thus Google's system has close to 3 times (2.97x) more parameters which is huge. In addition, Google pioneered the \"Transformer\" AI architecture in 2017, which is the fundamental system PaLM and even GPT-3 is built upon. The company does have a habit of releasing its cutting edge research to forward the progress in science. Its brand is respected for this, but moving forward I believe the company should keep its cards close to its chest to avoid opening up to competitors, as in the case of ChatGPT and now Microsoft, which I will discuss more about later.Large Language Models (Stanford cited research paper)Next you may ask, if Google's system is much larger, why did it make a mistake? To answer this let's analyse the \"mistake\", because mainstream news often doesn't explain the details. Below you can see a screenshot of the \"mistake\". The prompt question asks \"What new discoveries from the James Webb Space Telescope can I tell my 9 year old about?\". The third answer (which I've highlighted red), says \"JWST took the very first pictures of a planet outside of our own solar system\". This is not correct, as the first pictures of these \"exoplanets\" were taken by the European southern observatory's telescope in 2004, as confirmed by NASA.Google PaLM Mistake (Google Presentation author screenshot)Overall, I don't deem this \"mistake\" to be major and was definitely blown out of proportional by the media, thus its stock sell off was likely unjustified. In fact, upon further research I discovered that Google search also makes the same \"mistake\". I believe this is because, the James Webb Space Telescope \"first took\" images of planets outside of our Solar system in 2022, but was not the first to do so. Thus it is simply a word mix up and in fact one could argue that the answer is not actually a mistake. As the prompt asked specifically for \"new discoveries\", by the JWST which led to the answer.Google Search James Webb Telescope \"mistake\" (Author Google Search)It also makes sense to remember ChatGPT has made many mistakes in the past and these are widely known across the internet. For example the below prompt asks \"who can create a petition on the UK government e-petitions system\". ChatGPT answers \"anyone\", when in reality one must be a British citizen or resident for obvious reasons. In addition, ChatGPT's training data only goes up to 2021. For example, ChatGPT doesn't know Argentina won the world cup in 2022. Interestingly, we did not see many of ChatGPT's mistakes impact Open AI negatively, in fact Microsoft (MSFT) went onto to invest $10 billion into the business.ChatGPT mistakes (Jerry Fishendens)I believe the difference in positive/negative media coverage has really been all about expectations. Society has a high expectation of Google and the company has a huge amount of responsibility, when compared with a startup such as Open AI, which effectively had nothing to lose by releasing its system to the public in November 2022.Google could have released its PaLM model much earlier, as it was announced in April 2022. However, the company has held back for a variety of reasons, from accuracy to safety and bias. Google has a reputation to maintain and thus must ensure its system is immensely accurate before release or its brand would be damaged. In the short term this meant the company has lost out on \"hype\", but long term it should be better for the platform (as long as they don't wait too long). In addition, the safety element is important as the language model needs to ensure it doesn't entice acts of violence, suicide or even help others plot crimes, hack into systems etc.Bias is also an interestingly area, as often these models may contain lots of stereotypical information regarding religion and races, which could be offensive to others. Then of course we have \"explainability\", which is the ability of the model to explain how/why it came up with certain answers. Following on from this I noticed a gaping hole in the ChatGPT system. The system doesn't offer the \"source\" of any of its information. This means for it to be used as a \"search engine\" there could be law suits in the pipeline. For example, ChatGPT is \"trained\" on all the blog posts ever written on the internet, but doesn't credit the authors. In the traditional search world, when you reference another blog, most people then cite a source (through a backlink). This then gives credit to the original source, while also boosting their website \"domain authority\" and thus in turn making it more likely to \"rank\" higher on Google. This system works because the backlinks help generate more website traffic (through rankings), which can then be monetised through adverts and product sales. For example, I have written over 300 blog posts on Seeking Alpha, which has generated millions of views of website traffic and thus a portion of this can be monetised. If a large language model simply scraped this information with no author credit, then there would be no incentive for bloggers to write long term, which would effectively cause the internet's information to be stunted. Then of course we have plagiarism. I have tested ChatGPT to write mini blog posts on topics and upon running it through a plagiarism checker, copying was detected. Thus this means author credit issues, copyright infringement etc.A positive for Google is the company's core business is internet search, thus the business has a greater chance of introducing sources for data and explainability into its models. In fact this type of technology is called \"retrieval based NLP\" and is really an extension of traditional search. From the graphic below from a Stanford lecture (sorry about the blur), you can see a question was asked then multiple sources were \"scored\", before being synthesised into a single answer with links.Retrieval Based NLP (Stanford lecture author screenshot)Microsoft \"feels\" ahead of Google in generative AI after its $10 billion investment into Open AI and its announced plans to integrate into Bing, Microsoft Edge and other Microsoft products. However, upon closer inspection after visiting Bing and downloading the new \"AI powered\" edge browser I still found this to be in beta mode and I had to join a waitlist.Bing Generative AI Waitlist (Feb 13th 2023)Bing/Microsoft Edge does enable a few stock answers to be given alongside search results, which is pretty messy (in my opinion) and the full functionality is still in the \"waitlist\" phase. Thus I wouldn't worry about Bing stealing too much market share from Google anytime soon. In fact, it may actually harm its share as users will likely visit Bing because of the AI hype but then be left disappointed (such as myself). Ironically, in the search term example Bing highlights it ranks a YouTube video at the top (which is owned by Google of course) and is the largest video search engine in the world.Bing Specific Search Generative AI (Bing)I also did a review of the Google search website traffic versus Bing. Over the past three months Google has generated a staggering 259.8 billion website visits, which is astonishing. Whereas, Bing has generated \"just\" 3.464 billion website visits between November 2022 and January 2023. Interestingly enough the estimate shows Bing's search traffic actually dipped slightly from 1.16 billion visits in December 2022, to 1.148 billion in January 2023. As mentioned above, I am expecting a rise in February but if Bing doesn't show something unique and special, I doubt it will cause a significant shift in users.Bing vs Google Search Website traffic (author annotation similarweb data)Valuation and ForecastsIn my previous post on Google I covered its quarterly financials for the fourth quarter of 2022 in detail which you can review. Thus in this post I will just hop straight into the valuation. I have forecast 4% revenue growth for \"next year\" which in my model refers to the next four quarters. This is conservative but still slightly greater than the 1% year over year growth reported in Q4,22 at $76 billion. However, it should be noted its growth was mostly impacted by an eye watering $3 billion foreign exchange rate headwind. As on a constant currency basis, revenue actually increased by 7% year over year. The U.S dollar has started to correct down relative to the Euro very recently and thus I don't deem its impact will be as negative in 2023. This is also 1% lower than my previous post as I forecast short term competition headwinds from the new AI developments with Bing.For years 2 to 5, I have forecast a greater 11% revenue growth per year, this is a 2% increase per year over my prior valuation model estimates. I forecast this to be driven by an improvement in the cyclical advertising market, as well as continued growth in its Cloud business which grew revenue at a solid 32% YoY in Q4,22, generating $7.3 billion. I also expect Google to improve the monetization of its popular YouTube Shorts format (TikTok equivalent), after initial technical challenges.Google stock valuation 1 (created by author Deep Tech Insights)I have capitalized the company's R&D expenses which has boosted net income. In addition, I have forecast a 33% operating margin over next 6 years, this is 1% higher than the prior forecast given AI tailwinds which I believe will drive extra revenue, once Google formally releases its PaLM AI product to the public. This may seem overly confident but the company has achieved a similar margin before in Q3,21. I forecast this to be driven by the aforementioned factors included Cloud business growth, advertising market rebound and enhanced revenue from subscription services such as YouTube premium.Google stock valuation 2 (created by author Deep Tech Insights)Given these forecasts I get a fair value of $145/share, the stock is currently trading at $95/share at the time of writing and thus it is over 34.6% undervalued, according to my forecasts and model.As an extra datapoint, Alphabet trades at a forward P/E ratio equal to 18.42, which is over 31.6% cheaper than its 5 year average.Data by YChartsRisksCompetition/GPT/MicrosoftGoogle has dominated the search and advertising industry for decades, but now it's facing competition. As mentioned prior Microsoft's has invested $10 billion into ChatGPT and CEO Satya Nadella believes the Microsoft Edge browser can now be reborn. On an advertising front Microsoft has partnered with the world's largest streaming provider Netflix (NFLX), as its official advertising partner, which signals Microsoft's push into the advertising market.On a technical front Microsoft (with Nvidia) has created a huge natural language model dubbed the \"Megatron-Turning\", which has 530 billion parameters. This is 10 billion parameters less than Google's PaLM, but still pretty close. We do have the upcoming GPT-4, which many believed would be a 10X improvement with over 1 trillion parameters. However, when ChatGPT is asked the figure is closer to 175 billion parameters. Thus there is definitely misinformation going around and Open AI CEO Sam Altman debunked many of these myths. At a StricklyVC event, Altman stated that“The GPT-4 rumour mill is a ridiculous thing, I don’t know where it all comes from. It has been going for six months at this volume\"He also believed the hype was overblown for ChatGPT and was genuinely surprised by the viral reaction. For extra information, Google search queries are incredibly cheap for the company with the cost estimated to be one fifth of a cent. However, natural language model queries are estimated to cost ~5 times more in infrastructure expenses, according to Morgan Stanley analyst, Nowak. Therefore if half of Google's (3.3 trillion) queries were converted over to natural language models this could result in an extra $6 billion in costs. A positive for Google is I believe natural language queries will create more unique queries with different use cases in aggregate, thus the net benefit will be positive, as I've indicated in my long term model.Final ThoughtsGoogle is a tremendous technology company with a strong culture of innovation. I believe ChatGPT is a great \"product\" and Open AI managed to capture the initial excitement (and training data) of consumers. However, Google has been a pioneer in the AI space for decades and when it comes to search engine integration I believe the company has an edge. The advertising market is going through a cyclical downturn right now and its PaLM model \"mistake' was definitely overblown. Given Google's stock is undervalued intrinsically (according to my forecasts and model) I believe this is just another greater buying opportunity for long term investors.","news_type":1},"isVote":1,"tweetType":1,"viewCount":325,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":177683776,"gmtCreate":1627209664295,"gmtModify":1703485587173,"author":{"id":"3582979888637176","authorId":"3582979888637176","name":"bongy","avatar":"https://static.tigerbbs.com/195b714f9064df876c81e7a8d18aa4ea","crmLevel":2,"crmLevelSwitch":0,"followedFlag":false,"authorIdStr":"3582979888637176","idStr":"3582979888637176"},"themes":[],"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/177683776","repostId":"1176552691","repostType":4,"repost":{"id":"1176552691","kind":"news","pubTimestamp":1627183789,"share":"https://ttm.financial/m/news/1176552691?lang=&edition=fundamental","pubTime":"2021-07-25 11:29","market":"us","language":"en","title":"Is IBM Stock Undervalued Or Overvalued? What To Consider","url":"https://stock-news.laohu8.com/highlight/detail?id=1176552691","media":"seekingalpha","summary":"Summary\n\nIBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.","content":"<p><b>Summary</b></p>\n<ul>\n <li>IBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.</li>\n <li>Prior to Q1, IBM posted declining revenue for four consecutive quarters, and 30 of the last 34 quarters.</li>\n <li>More transparency is needed regarding the Kyndryl spinoff.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/2c798e0536c6804d44b195f6f349fab5\" tg-width=\"1536\" tg-height=\"1044\" width=\"100%\" height=\"auto\"><span>Ethan Miller/Getty Images News</span></p>\n<p>International Business Machines Corporation (IBM) is a company in transition. Unfortunately for investors, the transition has been in place for the better part of a decade. Those turnaround efforts include investments in cloud computing and artificial intelligence and the divestiture of legacy businesses. While there are now signs of green shoots, it is yet to be seen as to whether the seeds sown have fallen on rocky ground.</p>\n<p>Although the company has a rapidly growing business in hybrid cloud offerings, and a potential growth engine in quantum computing, it faces intense competition in the former industry and uncertain prospects in the latter. Most of the firm’s other businesses are in the doldrums, so IBM’s growth prospects are opaque.</p>\n<p>What is certain is that as of today, IBM has a reasonable and diminishing debt load and strong free cash flow.</p>\n<p>Management is attempting to address growth concerns in part by focusing on the firm’s cloud offerings, while it spins off its managed infrastructure business. That company will be named Kyndryl. However, the debt which the new entity will shoulder, along with the portion of the current dividend that it will carry, has not been divulged.</p>\n<p><b>Recent Quarterly Results</b></p>\n<p>IBM reported Q2 results last Monday. With non-GAAP EPS of $2.33, the company beat estimates by $0.04.</p>\n<p>Revenue of $18.7 billion was flat when adjusted for currency and divestitures.</p>\n<p>The negative side of the report had Systems revenue declining by 7%. However, this was largely due to the normal IBM Z mainframe cycle, down 13% year over year.</p>\n<p>The global financing division, which represents a low single digit percentage of overall revenues, was down 9%. Global technology services, which represents roughly a third of overall revenue and will largely be spun off as Kyndryl, had flattish growth.</p>\n<p>The positive side of the report had Cloud & Cognitive Software cloud revenue up 29% and Global Business Services cloud revenue up 35%. Total cloud revenue of $27 billion increased by 15% over the last 12 months, while cloud revenue grew 13% in the quarter to $7.0 billion.</p>\n<p>Net cash from operating activities hit $17.7 billion, and adjusted free cash flow totaled $11 billion over the last 12 months.</p>\n<p>Since year-end 2020, the company has reduced debt by $6.4 billion.</p>\n<p>Management guides for adjusted free cash flow of $11 billion to $12 billion in 2021.</p>\n<p><b>Where IBM Stands Tall</b></p>\n<p>IBM is viewed by many as at best a third rate IT company and at worst as a dinosaur, headed towards extinction.</p>\n<p>It is evident that the company’s revenues have declined for years; however, to accurately assess the stock, investors must understand that IBM’s legacy businesses have many strengths.</p>\n<p>For example, IBM is the world’s largest IT services company and the dominant provider of mainframes. Among the Fortune 50 companies, 47 are IBM clients.</p>\n<p>Half of the world’s wireless connections are handled by the firm.</p>\n<p>IBM's mainframe systems process nearly 90% of the globe’s credit card transactions, and 97% of the world's largest banks rely on IBM products and services. Consequently, twenty-nine billion ATM transactions are processed annually using IBM systems.</p>\n<p>Eight out of 10 global retailers rely on IBM products and services while 80% of the travel industry's reservations run through IBM systems. That results in 4 billion flight reservations being processed using the company’s IT services.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7ace4f1436fd2697c5ad266b5017e1dd\" tg-width=\"960\" tg-height=\"721\" width=\"100%\" height=\"auto\"><span>Source: Forbes</span></p>\n<p>It is evident that IBM has a massive customer base that provides large scale recurring revenues. In many cases, moving to competitors' offerings would mean risking the transfer of sensitive information, a move many are not willing to take.</p>\n<p>However, with the transition to cloud services and open source software, there is an increased adoption by firms of mix and match IT infrastructures. In turn, this is eroding IBM’s competitive advantage associated with customer switching costs.</p>\n<p><b>The Sources Of Potential Growth</b></p>\n<p>Investors are generally aware of IBM's effort to drive growth through its hybrid cloud offerings. However, when questioned at JPMorgan’s recent investor conference, CFO Jim Kavanaugh provided insight into how hybrid cloud drives revenue in some of IBM’s other divisions.</p>\n<blockquote>\n For every $1 (in business) we land on a hybrid cloud platform, we see $3 to $5 of software drag and $6 to $8 of services drag overall.\n</blockquote>\n<p>Of course, Kavanaugh is using drag to refer to increased revenue in software and services associated with adoption of IBM’s hybrid cloud. If Kavanaugh’s claims are accurate, that means every dollar spent on the company’s hybrid cloud platform translates into $9 to $13 in additional revenue from the firm’s software and services offerings.</p>\n<p>Because hybrid cloud uses a mix of on-premises private cloud and public cloud services, it offers clients a degree of data privacy. This is of particular concern for customers in healthcare and financial services. Consequently, I would posit that IBM might have an advantage in competing with other hybrid cloud providers as it has extensive relationships within those industries.</p>\n<p>I reviewed a variety of prognostications regarding projected growth rates for the hybrid cloud market. The most recent study, which also falls in the middle of other predictions, is by Mordor Intelligence. That firm forecasts a CAGR of 18.73% from 2021 through 2026.</p>\n<p>Investors should be aware that the major operators in this space are Cisco (CSCO), Hewlett Packard (HPE), Amazon (AMZN), Citrix Systems (CTXS), and IBM.</p>\n<p>The following chart provides a record of the firm’s total cloud growth over the last six quarters.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/5fc85156e70f6caf8ae809f76126a723\" tg-width=\"576\" tg-height=\"336\" width=\"100%\" height=\"auto\"><span>Source: Company reports / Chart by Author</span></p>\n<p>Aside from cloud, there is another source of potential growth, although it is unlikely to materialize soon.</p>\n<p>Early in 2019, IBM introduced the Q System One. IBM Q systems are the world's first quantum computer designed for scientific and commercial use.</p>\n<p>Pardon the pun, but quantum computers represent a quantum leap in technology. Prescient And Strategic Intelligence forecasts a CAGR of 56% for the industry through 2030 with the quantum computer market share reaching nearly $65 billion.</p>\n<p>For additional insights regarding quantum computing and IBM’s position within that industry, I point you to my article, “IBM: Why My Eye Is Fixed On Big Blue.”</p>\n<p><b>Understanding Kyndryl</b></p>\n<p>Once Kyndryl is launched, it will have more than 90,000 employees and more than 4,600 customers in 115 countries. With a $60 billion services backlog, the new entity will begin with projected revenues of $19 billion. At twice the size of its closest competitor, the company will be the world’s largest managed infrastructure services provider.</p>\n<p>The split will transform IBM from a company that pulls half of its revenue from services to a firm with its software and solutions businesses generating over half of its revenue on a recurring basis.</p>\n<p>Global Business Services, which currently constitutes 22% of the company’s revenue, will account for over 40% of sales. Here it is important to note that the division grew revenue by 12% year over year in the last quarter.</p>\n<p>IBM will retain Red Hat and its solution provider business, the systems businesses, and its mission-critical public cloud service, and a software portfolio focused on big data, AI, and security.</p>\n<p>Initially, the two companies will each be the largest customer of the other.</p>\n<p>What remains to be known regarding the spinoff is how much debt each company will shoulder, and the share of the dividend that the companies will pay. Krishna stated the two companies will work together to sustain the current payout level.</p>\n<p><b>Has IBM Turned The Corner?</b></p>\n<p>Anyone who follows IBM knows the company has experienced an extended period of poor results. The following chart provides a record of the firm’s quarterly FCF over the last fourteen quarters.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/60cc8b82052f97dd449205999ee30711\" tg-width=\"577\" tg-height=\"337\" width=\"100%\" height=\"auto\"><span>Source: Data from ycharts / chart by author</span></p>\n<p>While this is not proof positive that the company is back on track, the recent trend is at least encouraging.</p>\n<p>In 2020, IBM generated $10.8 billion in free cash flow. Management guides for adjusted free cash flow of $11 billion to $12 billion in 2021. This excludes $3 billion in structural impacts related to the Kyndryl spinoff.</p>\n<p>The CEO recently stated he expects IBM to generate $12 billion to $13 billion in FCF in 2022.</p>\n<p><b>Debt And Dividend</b></p>\n<p>While investors can rightfully complain of a variety of management moves over the years, the firm has maintained a reasonable debt profile while engaging in a number of acquisitions.</p>\n<p>The company has reduced the debt by roughly $18 billion since its peak in mid-2019. IBM maintains an investment level credit rating, and the following chart provides a record of the company’s progress paying down debt of late.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/b73e613157c486a5f5e8306546121971\" tg-width=\"1280\" tg-height=\"720\" width=\"100%\" height=\"auto\"><span>Source: IBM Presentation</span></p>\n<p>IBM has a yield of 4.64%, a payout ratio a bit below 61%, and a 5 year dividend growth rate of 4.26%. As previously noted, following the spinoff of Kyndryl, the two companies will team to provide a payout equivalent to the current dividend.</p>\n<p><b>Is IBM Stock Overvalued?</b></p>\n<p>IBM shares trade for $141.13. The average 12 month price target of 8 analysts is $153.50. The price target of the 3 analysts rating the stock since the last earnings report is $151.33.</p>\n<p>IBM has a P/E of 24.05x and a forward P/E of 17.67x. This compares to its five year averages of 16.42x and 13.25x respectively. It is well below the sector average which is in the low thirties for both metrics.</p>\n<p>The 3 to 5 year PEG provided by Seeking Alpha Premium is 1.16x. Schwab calculates a PEG of 1.49x, and Yahoo does not provide a PEG ratio.</p>\n<p>I believe the current P/E ratios for the stock reflect investors anticipating increased growth for IBM once the spinoff is complete. The PEG ratios show the stock is reasonably valued.</p>\n<p><b>Is IBM Stock A Good Long-Term Investment?</b></p>\n<p>IBM has an entrenched but evolving position among many of the largest companies on the globe. Unfortunately, the cloud, which is seen as the company’s primary avenue for growth, could also lead to a slow deterioration in some of the firm’s legacy businesses.</p>\n<p>That the cloud business has been growing at a rapid pace is manifest: IBM can now boast of over 3,200 clients using the firm’s hybrid cloud platform. That is nearly four times the number just prior to the Red Hat acquisition.</p>\n<p>If management’s claims are accurate, the hybrid cloud platform will create robust growth in the software and services division’s revenues. When combined with the spinoff of Kyndryl’s slow growing managed infrastructure services business, it is reasonable to believe IBM will witness increased growth.</p>\n<p>IBM has a solid balance sheet, a robust yield, and when viewed using PEG ratios as a basis for valuing the stock, the shares are trading at a bit of a discount.</p>\n<p>All considered, I rate IBM as a BUY.</p>\n<p>I think the worst case short to mid-term scenario is that the company experiences slow growth while investors collect a rather robust dividend.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Is IBM Stock Undervalued Or Overvalued? 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What To Consider\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-25 11:29 GMT+8 <a href=https://seekingalpha.com/article/4440996-is-ibm-stock-undervalued-overvalued><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nIBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.\nPrior to Q1, IBM posted declining revenue for four consecutive quarters, and 30 of the last 34 ...</p>\n\n<a href=\"https://seekingalpha.com/article/4440996-is-ibm-stock-undervalued-overvalued\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"IBM":"IBM"},"source_url":"https://seekingalpha.com/article/4440996-is-ibm-stock-undervalued-overvalued","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1176552691","content_text":"Summary\n\nIBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.\nPrior to Q1, IBM posted declining revenue for four consecutive quarters, and 30 of the last 34 quarters.\nMore transparency is needed regarding the Kyndryl spinoff.\n\nEthan Miller/Getty Images News\nInternational Business Machines Corporation (IBM) is a company in transition. Unfortunately for investors, the transition has been in place for the better part of a decade. Those turnaround efforts include investments in cloud computing and artificial intelligence and the divestiture of legacy businesses. While there are now signs of green shoots, it is yet to be seen as to whether the seeds sown have fallen on rocky ground.\nAlthough the company has a rapidly growing business in hybrid cloud offerings, and a potential growth engine in quantum computing, it faces intense competition in the former industry and uncertain prospects in the latter. Most of the firm’s other businesses are in the doldrums, so IBM’s growth prospects are opaque.\nWhat is certain is that as of today, IBM has a reasonable and diminishing debt load and strong free cash flow.\nManagement is attempting to address growth concerns in part by focusing on the firm’s cloud offerings, while it spins off its managed infrastructure business. That company will be named Kyndryl. However, the debt which the new entity will shoulder, along with the portion of the current dividend that it will carry, has not been divulged.\nRecent Quarterly Results\nIBM reported Q2 results last Monday. With non-GAAP EPS of $2.33, the company beat estimates by $0.04.\nRevenue of $18.7 billion was flat when adjusted for currency and divestitures.\nThe negative side of the report had Systems revenue declining by 7%. However, this was largely due to the normal IBM Z mainframe cycle, down 13% year over year.\nThe global financing division, which represents a low single digit percentage of overall revenues, was down 9%. Global technology services, which represents roughly a third of overall revenue and will largely be spun off as Kyndryl, had flattish growth.\nThe positive side of the report had Cloud & Cognitive Software cloud revenue up 29% and Global Business Services cloud revenue up 35%. Total cloud revenue of $27 billion increased by 15% over the last 12 months, while cloud revenue grew 13% in the quarter to $7.0 billion.\nNet cash from operating activities hit $17.7 billion, and adjusted free cash flow totaled $11 billion over the last 12 months.\nSince year-end 2020, the company has reduced debt by $6.4 billion.\nManagement guides for adjusted free cash flow of $11 billion to $12 billion in 2021.\nWhere IBM Stands Tall\nIBM is viewed by many as at best a third rate IT company and at worst as a dinosaur, headed towards extinction.\nIt is evident that the company’s revenues have declined for years; however, to accurately assess the stock, investors must understand that IBM’s legacy businesses have many strengths.\nFor example, IBM is the world’s largest IT services company and the dominant provider of mainframes. Among the Fortune 50 companies, 47 are IBM clients.\nHalf of the world’s wireless connections are handled by the firm.\nIBM's mainframe systems process nearly 90% of the globe’s credit card transactions, and 97% of the world's largest banks rely on IBM products and services. Consequently, twenty-nine billion ATM transactions are processed annually using IBM systems.\nEight out of 10 global retailers rely on IBM products and services while 80% of the travel industry's reservations run through IBM systems. That results in 4 billion flight reservations being processed using the company’s IT services.\nSource: Forbes\nIt is evident that IBM has a massive customer base that provides large scale recurring revenues. In many cases, moving to competitors' offerings would mean risking the transfer of sensitive information, a move many are not willing to take.\nHowever, with the transition to cloud services and open source software, there is an increased adoption by firms of mix and match IT infrastructures. In turn, this is eroding IBM’s competitive advantage associated with customer switching costs.\nThe Sources Of Potential Growth\nInvestors are generally aware of IBM's effort to drive growth through its hybrid cloud offerings. However, when questioned at JPMorgan’s recent investor conference, CFO Jim Kavanaugh provided insight into how hybrid cloud drives revenue in some of IBM’s other divisions.\n\n For every $1 (in business) we land on a hybrid cloud platform, we see $3 to $5 of software drag and $6 to $8 of services drag overall.\n\nOf course, Kavanaugh is using drag to refer to increased revenue in software and services associated with adoption of IBM’s hybrid cloud. If Kavanaugh’s claims are accurate, that means every dollar spent on the company’s hybrid cloud platform translates into $9 to $13 in additional revenue from the firm’s software and services offerings.\nBecause hybrid cloud uses a mix of on-premises private cloud and public cloud services, it offers clients a degree of data privacy. This is of particular concern for customers in healthcare and financial services. Consequently, I would posit that IBM might have an advantage in competing with other hybrid cloud providers as it has extensive relationships within those industries.\nI reviewed a variety of prognostications regarding projected growth rates for the hybrid cloud market. The most recent study, which also falls in the middle of other predictions, is by Mordor Intelligence. That firm forecasts a CAGR of 18.73% from 2021 through 2026.\nInvestors should be aware that the major operators in this space are Cisco (CSCO), Hewlett Packard (HPE), Amazon (AMZN), Citrix Systems (CTXS), and IBM.\nThe following chart provides a record of the firm’s total cloud growth over the last six quarters.\nSource: Company reports / Chart by Author\nAside from cloud, there is another source of potential growth, although it is unlikely to materialize soon.\nEarly in 2019, IBM introduced the Q System One. IBM Q systems are the world's first quantum computer designed for scientific and commercial use.\nPardon the pun, but quantum computers represent a quantum leap in technology. Prescient And Strategic Intelligence forecasts a CAGR of 56% for the industry through 2030 with the quantum computer market share reaching nearly $65 billion.\nFor additional insights regarding quantum computing and IBM’s position within that industry, I point you to my article, “IBM: Why My Eye Is Fixed On Big Blue.”\nUnderstanding Kyndryl\nOnce Kyndryl is launched, it will have more than 90,000 employees and more than 4,600 customers in 115 countries. With a $60 billion services backlog, the new entity will begin with projected revenues of $19 billion. At twice the size of its closest competitor, the company will be the world’s largest managed infrastructure services provider.\nThe split will transform IBM from a company that pulls half of its revenue from services to a firm with its software and solutions businesses generating over half of its revenue on a recurring basis.\nGlobal Business Services, which currently constitutes 22% of the company’s revenue, will account for over 40% of sales. Here it is important to note that the division grew revenue by 12% year over year in the last quarter.\nIBM will retain Red Hat and its solution provider business, the systems businesses, and its mission-critical public cloud service, and a software portfolio focused on big data, AI, and security.\nInitially, the two companies will each be the largest customer of the other.\nWhat remains to be known regarding the spinoff is how much debt each company will shoulder, and the share of the dividend that the companies will pay. Krishna stated the two companies will work together to sustain the current payout level.\nHas IBM Turned The Corner?\nAnyone who follows IBM knows the company has experienced an extended period of poor results. The following chart provides a record of the firm’s quarterly FCF over the last fourteen quarters.\nSource: Data from ycharts / chart by author\nWhile this is not proof positive that the company is back on track, the recent trend is at least encouraging.\nIn 2020, IBM generated $10.8 billion in free cash flow. Management guides for adjusted free cash flow of $11 billion to $12 billion in 2021. This excludes $3 billion in structural impacts related to the Kyndryl spinoff.\nThe CEO recently stated he expects IBM to generate $12 billion to $13 billion in FCF in 2022.\nDebt And Dividend\nWhile investors can rightfully complain of a variety of management moves over the years, the firm has maintained a reasonable debt profile while engaging in a number of acquisitions.\nThe company has reduced the debt by roughly $18 billion since its peak in mid-2019. IBM maintains an investment level credit rating, and the following chart provides a record of the company’s progress paying down debt of late.\nSource: IBM Presentation\nIBM has a yield of 4.64%, a payout ratio a bit below 61%, and a 5 year dividend growth rate of 4.26%. As previously noted, following the spinoff of Kyndryl, the two companies will team to provide a payout equivalent to the current dividend.\nIs IBM Stock Overvalued?\nIBM shares trade for $141.13. The average 12 month price target of 8 analysts is $153.50. The price target of the 3 analysts rating the stock since the last earnings report is $151.33.\nIBM has a P/E of 24.05x and a forward P/E of 17.67x. This compares to its five year averages of 16.42x and 13.25x respectively. It is well below the sector average which is in the low thirties for both metrics.\nThe 3 to 5 year PEG provided by Seeking Alpha Premium is 1.16x. Schwab calculates a PEG of 1.49x, and Yahoo does not provide a PEG ratio.\nI believe the current P/E ratios for the stock reflect investors anticipating increased growth for IBM once the spinoff is complete. The PEG ratios show the stock is reasonably valued.\nIs IBM Stock A Good Long-Term Investment?\nIBM has an entrenched but evolving position among many of the largest companies on the globe. Unfortunately, the cloud, which is seen as the company’s primary avenue for growth, could also lead to a slow deterioration in some of the firm’s legacy businesses.\nThat the cloud business has been growing at a rapid pace is manifest: IBM can now boast of over 3,200 clients using the firm’s hybrid cloud platform. That is nearly four times the number just prior to the Red Hat acquisition.\nIf management’s claims are accurate, the hybrid cloud platform will create robust growth in the software and services division’s revenues. When combined with the spinoff of Kyndryl’s slow growing managed infrastructure services business, it is reasonable to believe IBM will witness increased growth.\nIBM has a solid balance sheet, a robust yield, and when viewed using PEG ratios as a basis for valuing the stock, the shares are trading at a bit of a discount.\nAll considered, I rate IBM as a BUY.\nI think the worst case short to mid-term scenario is that the company experiences slow growth while investors collect a rather robust dividend.","news_type":1},"isVote":1,"tweetType":1,"viewCount":407,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":174583132,"gmtCreate":1627111214926,"gmtModify":1703484445358,"author":{"id":"3582979888637176","authorId":"3582979888637176","name":"bongy","avatar":"https://static.tigerbbs.com/195b714f9064df876c81e7a8d18aa4ea","crmLevel":2,"crmLevelSwitch":0,"followedFlag":false,"authorIdStr":"3582979888637176","idStr":"3582979888637176"},"themes":[],"htmlText":"Cool","listText":"Cool","text":"Cool","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/174583132","repostId":"1191636755","repostType":4,"isVote":1,"tweetType":1,"viewCount":272,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"hots":[{"id":177683776,"gmtCreate":1627209664295,"gmtModify":1703485587173,"author":{"id":"3582979888637176","authorId":"3582979888637176","name":"bongy","avatar":"https://static.tigerbbs.com/195b714f9064df876c81e7a8d18aa4ea","crmLevel":2,"crmLevelSwitch":0,"followedFlag":false,"idStr":"3582979888637176","authorIdStr":"3582979888637176"},"themes":[],"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/177683776","repostId":"1176552691","repostType":4,"repost":{"id":"1176552691","kind":"news","pubTimestamp":1627183789,"share":"https://ttm.financial/m/news/1176552691?lang=&edition=fundamental","pubTime":"2021-07-25 11:29","market":"us","language":"en","title":"Is IBM Stock Undervalued Or Overvalued? What To Consider","url":"https://stock-news.laohu8.com/highlight/detail?id=1176552691","media":"seekingalpha","summary":"Summary\n\nIBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.","content":"<p><b>Summary</b></p>\n<ul>\n <li>IBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.</li>\n <li>Prior to Q1, IBM posted declining revenue for four consecutive quarters, and 30 of the last 34 quarters.</li>\n <li>More transparency is needed regarding the Kyndryl spinoff.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/2c798e0536c6804d44b195f6f349fab5\" tg-width=\"1536\" tg-height=\"1044\" width=\"100%\" height=\"auto\"><span>Ethan Miller/Getty Images News</span></p>\n<p>International Business Machines Corporation (IBM) is a company in transition. Unfortunately for investors, the transition has been in place for the better part of a decade. Those turnaround efforts include investments in cloud computing and artificial intelligence and the divestiture of legacy businesses. While there are now signs of green shoots, it is yet to be seen as to whether the seeds sown have fallen on rocky ground.</p>\n<p>Although the company has a rapidly growing business in hybrid cloud offerings, and a potential growth engine in quantum computing, it faces intense competition in the former industry and uncertain prospects in the latter. Most of the firm’s other businesses are in the doldrums, so IBM’s growth prospects are opaque.</p>\n<p>What is certain is that as of today, IBM has a reasonable and diminishing debt load and strong free cash flow.</p>\n<p>Management is attempting to address growth concerns in part by focusing on the firm’s cloud offerings, while it spins off its managed infrastructure business. That company will be named Kyndryl. However, the debt which the new entity will shoulder, along with the portion of the current dividend that it will carry, has not been divulged.</p>\n<p><b>Recent Quarterly Results</b></p>\n<p>IBM reported Q2 results last Monday. With non-GAAP EPS of $2.33, the company beat estimates by $0.04.</p>\n<p>Revenue of $18.7 billion was flat when adjusted for currency and divestitures.</p>\n<p>The negative side of the report had Systems revenue declining by 7%. However, this was largely due to the normal IBM Z mainframe cycle, down 13% year over year.</p>\n<p>The global financing division, which represents a low single digit percentage of overall revenues, was down 9%. Global technology services, which represents roughly a third of overall revenue and will largely be spun off as Kyndryl, had flattish growth.</p>\n<p>The positive side of the report had Cloud & Cognitive Software cloud revenue up 29% and Global Business Services cloud revenue up 35%. Total cloud revenue of $27 billion increased by 15% over the last 12 months, while cloud revenue grew 13% in the quarter to $7.0 billion.</p>\n<p>Net cash from operating activities hit $17.7 billion, and adjusted free cash flow totaled $11 billion over the last 12 months.</p>\n<p>Since year-end 2020, the company has reduced debt by $6.4 billion.</p>\n<p>Management guides for adjusted free cash flow of $11 billion to $12 billion in 2021.</p>\n<p><b>Where IBM Stands Tall</b></p>\n<p>IBM is viewed by many as at best a third rate IT company and at worst as a dinosaur, headed towards extinction.</p>\n<p>It is evident that the company’s revenues have declined for years; however, to accurately assess the stock, investors must understand that IBM’s legacy businesses have many strengths.</p>\n<p>For example, IBM is the world’s largest IT services company and the dominant provider of mainframes. Among the Fortune 50 companies, 47 are IBM clients.</p>\n<p>Half of the world’s wireless connections are handled by the firm.</p>\n<p>IBM's mainframe systems process nearly 90% of the globe’s credit card transactions, and 97% of the world's largest banks rely on IBM products and services. Consequently, twenty-nine billion ATM transactions are processed annually using IBM systems.</p>\n<p>Eight out of 10 global retailers rely on IBM products and services while 80% of the travel industry's reservations run through IBM systems. That results in 4 billion flight reservations being processed using the company’s IT services.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7ace4f1436fd2697c5ad266b5017e1dd\" tg-width=\"960\" tg-height=\"721\" width=\"100%\" height=\"auto\"><span>Source: Forbes</span></p>\n<p>It is evident that IBM has a massive customer base that provides large scale recurring revenues. In many cases, moving to competitors' offerings would mean risking the transfer of sensitive information, a move many are not willing to take.</p>\n<p>However, with the transition to cloud services and open source software, there is an increased adoption by firms of mix and match IT infrastructures. In turn, this is eroding IBM’s competitive advantage associated with customer switching costs.</p>\n<p><b>The Sources Of Potential Growth</b></p>\n<p>Investors are generally aware of IBM's effort to drive growth through its hybrid cloud offerings. However, when questioned at JPMorgan’s recent investor conference, CFO Jim Kavanaugh provided insight into how hybrid cloud drives revenue in some of IBM’s other divisions.</p>\n<blockquote>\n For every $1 (in business) we land on a hybrid cloud platform, we see $3 to $5 of software drag and $6 to $8 of services drag overall.\n</blockquote>\n<p>Of course, Kavanaugh is using drag to refer to increased revenue in software and services associated with adoption of IBM’s hybrid cloud. If Kavanaugh’s claims are accurate, that means every dollar spent on the company’s hybrid cloud platform translates into $9 to $13 in additional revenue from the firm’s software and services offerings.</p>\n<p>Because hybrid cloud uses a mix of on-premises private cloud and public cloud services, it offers clients a degree of data privacy. This is of particular concern for customers in healthcare and financial services. Consequently, I would posit that IBM might have an advantage in competing with other hybrid cloud providers as it has extensive relationships within those industries.</p>\n<p>I reviewed a variety of prognostications regarding projected growth rates for the hybrid cloud market. The most recent study, which also falls in the middle of other predictions, is by Mordor Intelligence. That firm forecasts a CAGR of 18.73% from 2021 through 2026.</p>\n<p>Investors should be aware that the major operators in this space are Cisco (CSCO), Hewlett Packard (HPE), Amazon (AMZN), Citrix Systems (CTXS), and IBM.</p>\n<p>The following chart provides a record of the firm’s total cloud growth over the last six quarters.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/5fc85156e70f6caf8ae809f76126a723\" tg-width=\"576\" tg-height=\"336\" width=\"100%\" height=\"auto\"><span>Source: Company reports / Chart by Author</span></p>\n<p>Aside from cloud, there is another source of potential growth, although it is unlikely to materialize soon.</p>\n<p>Early in 2019, IBM introduced the Q System One. IBM Q systems are the world's first quantum computer designed for scientific and commercial use.</p>\n<p>Pardon the pun, but quantum computers represent a quantum leap in technology. Prescient And Strategic Intelligence forecasts a CAGR of 56% for the industry through 2030 with the quantum computer market share reaching nearly $65 billion.</p>\n<p>For additional insights regarding quantum computing and IBM’s position within that industry, I point you to my article, “IBM: Why My Eye Is Fixed On Big Blue.”</p>\n<p><b>Understanding Kyndryl</b></p>\n<p>Once Kyndryl is launched, it will have more than 90,000 employees and more than 4,600 customers in 115 countries. With a $60 billion services backlog, the new entity will begin with projected revenues of $19 billion. At twice the size of its closest competitor, the company will be the world’s largest managed infrastructure services provider.</p>\n<p>The split will transform IBM from a company that pulls half of its revenue from services to a firm with its software and solutions businesses generating over half of its revenue on a recurring basis.</p>\n<p>Global Business Services, which currently constitutes 22% of the company’s revenue, will account for over 40% of sales. Here it is important to note that the division grew revenue by 12% year over year in the last quarter.</p>\n<p>IBM will retain Red Hat and its solution provider business, the systems businesses, and its mission-critical public cloud service, and a software portfolio focused on big data, AI, and security.</p>\n<p>Initially, the two companies will each be the largest customer of the other.</p>\n<p>What remains to be known regarding the spinoff is how much debt each company will shoulder, and the share of the dividend that the companies will pay. Krishna stated the two companies will work together to sustain the current payout level.</p>\n<p><b>Has IBM Turned The Corner?</b></p>\n<p>Anyone who follows IBM knows the company has experienced an extended period of poor results. The following chart provides a record of the firm’s quarterly FCF over the last fourteen quarters.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/60cc8b82052f97dd449205999ee30711\" tg-width=\"577\" tg-height=\"337\" width=\"100%\" height=\"auto\"><span>Source: Data from ycharts / chart by author</span></p>\n<p>While this is not proof positive that the company is back on track, the recent trend is at least encouraging.</p>\n<p>In 2020, IBM generated $10.8 billion in free cash flow. Management guides for adjusted free cash flow of $11 billion to $12 billion in 2021. This excludes $3 billion in structural impacts related to the Kyndryl spinoff.</p>\n<p>The CEO recently stated he expects IBM to generate $12 billion to $13 billion in FCF in 2022.</p>\n<p><b>Debt And Dividend</b></p>\n<p>While investors can rightfully complain of a variety of management moves over the years, the firm has maintained a reasonable debt profile while engaging in a number of acquisitions.</p>\n<p>The company has reduced the debt by roughly $18 billion since its peak in mid-2019. IBM maintains an investment level credit rating, and the following chart provides a record of the company’s progress paying down debt of late.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/b73e613157c486a5f5e8306546121971\" tg-width=\"1280\" tg-height=\"720\" width=\"100%\" height=\"auto\"><span>Source: IBM Presentation</span></p>\n<p>IBM has a yield of 4.64%, a payout ratio a bit below 61%, and a 5 year dividend growth rate of 4.26%. As previously noted, following the spinoff of Kyndryl, the two companies will team to provide a payout equivalent to the current dividend.</p>\n<p><b>Is IBM Stock Overvalued?</b></p>\n<p>IBM shares trade for $141.13. The average 12 month price target of 8 analysts is $153.50. The price target of the 3 analysts rating the stock since the last earnings report is $151.33.</p>\n<p>IBM has a P/E of 24.05x and a forward P/E of 17.67x. This compares to its five year averages of 16.42x and 13.25x respectively. It is well below the sector average which is in the low thirties for both metrics.</p>\n<p>The 3 to 5 year PEG provided by Seeking Alpha Premium is 1.16x. Schwab calculates a PEG of 1.49x, and Yahoo does not provide a PEG ratio.</p>\n<p>I believe the current P/E ratios for the stock reflect investors anticipating increased growth for IBM once the spinoff is complete. The PEG ratios show the stock is reasonably valued.</p>\n<p><b>Is IBM Stock A Good Long-Term Investment?</b></p>\n<p>IBM has an entrenched but evolving position among many of the largest companies on the globe. Unfortunately, the cloud, which is seen as the company’s primary avenue for growth, could also lead to a slow deterioration in some of the firm’s legacy businesses.</p>\n<p>That the cloud business has been growing at a rapid pace is manifest: IBM can now boast of over 3,200 clients using the firm’s hybrid cloud platform. That is nearly four times the number just prior to the Red Hat acquisition.</p>\n<p>If management’s claims are accurate, the hybrid cloud platform will create robust growth in the software and services division’s revenues. When combined with the spinoff of Kyndryl’s slow growing managed infrastructure services business, it is reasonable to believe IBM will witness increased growth.</p>\n<p>IBM has a solid balance sheet, a robust yield, and when viewed using PEG ratios as a basis for valuing the stock, the shares are trading at a bit of a discount.</p>\n<p>All considered, I rate IBM as a BUY.</p>\n<p>I think the worst case short to mid-term scenario is that the company experiences slow growth while investors collect a rather robust dividend.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Is IBM Stock Undervalued Or Overvalued? What To Consider</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIs IBM Stock Undervalued Or Overvalued? What To Consider\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-25 11:29 GMT+8 <a href=https://seekingalpha.com/article/4440996-is-ibm-stock-undervalued-overvalued><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nIBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.\nPrior to Q1, IBM posted declining revenue for four consecutive quarters, and 30 of the last 34 ...</p>\n\n<a href=\"https://seekingalpha.com/article/4440996-is-ibm-stock-undervalued-overvalued\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"IBM":"IBM"},"source_url":"https://seekingalpha.com/article/4440996-is-ibm-stock-undervalued-overvalued","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1176552691","content_text":"Summary\n\nIBM beat analysts’ second-quarter earnings as cloud revenue and operating margins improved.\nPrior to Q1, IBM posted declining revenue for four consecutive quarters, and 30 of the last 34 quarters.\nMore transparency is needed regarding the Kyndryl spinoff.\n\nEthan Miller/Getty Images News\nInternational Business Machines Corporation (IBM) is a company in transition. Unfortunately for investors, the transition has been in place for the better part of a decade. Those turnaround efforts include investments in cloud computing and artificial intelligence and the divestiture of legacy businesses. While there are now signs of green shoots, it is yet to be seen as to whether the seeds sown have fallen on rocky ground.\nAlthough the company has a rapidly growing business in hybrid cloud offerings, and a potential growth engine in quantum computing, it faces intense competition in the former industry and uncertain prospects in the latter. Most of the firm’s other businesses are in the doldrums, so IBM’s growth prospects are opaque.\nWhat is certain is that as of today, IBM has a reasonable and diminishing debt load and strong free cash flow.\nManagement is attempting to address growth concerns in part by focusing on the firm’s cloud offerings, while it spins off its managed infrastructure business. That company will be named Kyndryl. However, the debt which the new entity will shoulder, along with the portion of the current dividend that it will carry, has not been divulged.\nRecent Quarterly Results\nIBM reported Q2 results last Monday. With non-GAAP EPS of $2.33, the company beat estimates by $0.04.\nRevenue of $18.7 billion was flat when adjusted for currency and divestitures.\nThe negative side of the report had Systems revenue declining by 7%. However, this was largely due to the normal IBM Z mainframe cycle, down 13% year over year.\nThe global financing division, which represents a low single digit percentage of overall revenues, was down 9%. Global technology services, which represents roughly a third of overall revenue and will largely be spun off as Kyndryl, had flattish growth.\nThe positive side of the report had Cloud & Cognitive Software cloud revenue up 29% and Global Business Services cloud revenue up 35%. Total cloud revenue of $27 billion increased by 15% over the last 12 months, while cloud revenue grew 13% in the quarter to $7.0 billion.\nNet cash from operating activities hit $17.7 billion, and adjusted free cash flow totaled $11 billion over the last 12 months.\nSince year-end 2020, the company has reduced debt by $6.4 billion.\nManagement guides for adjusted free cash flow of $11 billion to $12 billion in 2021.\nWhere IBM Stands Tall\nIBM is viewed by many as at best a third rate IT company and at worst as a dinosaur, headed towards extinction.\nIt is evident that the company’s revenues have declined for years; however, to accurately assess the stock, investors must understand that IBM’s legacy businesses have many strengths.\nFor example, IBM is the world’s largest IT services company and the dominant provider of mainframes. Among the Fortune 50 companies, 47 are IBM clients.\nHalf of the world’s wireless connections are handled by the firm.\nIBM's mainframe systems process nearly 90% of the globe’s credit card transactions, and 97% of the world's largest banks rely on IBM products and services. Consequently, twenty-nine billion ATM transactions are processed annually using IBM systems.\nEight out of 10 global retailers rely on IBM products and services while 80% of the travel industry's reservations run through IBM systems. That results in 4 billion flight reservations being processed using the company’s IT services.\nSource: Forbes\nIt is evident that IBM has a massive customer base that provides large scale recurring revenues. In many cases, moving to competitors' offerings would mean risking the transfer of sensitive information, a move many are not willing to take.\nHowever, with the transition to cloud services and open source software, there is an increased adoption by firms of mix and match IT infrastructures. In turn, this is eroding IBM’s competitive advantage associated with customer switching costs.\nThe Sources Of Potential Growth\nInvestors are generally aware of IBM's effort to drive growth through its hybrid cloud offerings. However, when questioned at JPMorgan’s recent investor conference, CFO Jim Kavanaugh provided insight into how hybrid cloud drives revenue in some of IBM’s other divisions.\n\n For every $1 (in business) we land on a hybrid cloud platform, we see $3 to $5 of software drag and $6 to $8 of services drag overall.\n\nOf course, Kavanaugh is using drag to refer to increased revenue in software and services associated with adoption of IBM’s hybrid cloud. If Kavanaugh’s claims are accurate, that means every dollar spent on the company’s hybrid cloud platform translates into $9 to $13 in additional revenue from the firm’s software and services offerings.\nBecause hybrid cloud uses a mix of on-premises private cloud and public cloud services, it offers clients a degree of data privacy. This is of particular concern for customers in healthcare and financial services. Consequently, I would posit that IBM might have an advantage in competing with other hybrid cloud providers as it has extensive relationships within those industries.\nI reviewed a variety of prognostications regarding projected growth rates for the hybrid cloud market. The most recent study, which also falls in the middle of other predictions, is by Mordor Intelligence. That firm forecasts a CAGR of 18.73% from 2021 through 2026.\nInvestors should be aware that the major operators in this space are Cisco (CSCO), Hewlett Packard (HPE), Amazon (AMZN), Citrix Systems (CTXS), and IBM.\nThe following chart provides a record of the firm’s total cloud growth over the last six quarters.\nSource: Company reports / Chart by Author\nAside from cloud, there is another source of potential growth, although it is unlikely to materialize soon.\nEarly in 2019, IBM introduced the Q System One. IBM Q systems are the world's first quantum computer designed for scientific and commercial use.\nPardon the pun, but quantum computers represent a quantum leap in technology. Prescient And Strategic Intelligence forecasts a CAGR of 56% for the industry through 2030 with the quantum computer market share reaching nearly $65 billion.\nFor additional insights regarding quantum computing and IBM’s position within that industry, I point you to my article, “IBM: Why My Eye Is Fixed On Big Blue.”\nUnderstanding Kyndryl\nOnce Kyndryl is launched, it will have more than 90,000 employees and more than 4,600 customers in 115 countries. With a $60 billion services backlog, the new entity will begin with projected revenues of $19 billion. At twice the size of its closest competitor, the company will be the world’s largest managed infrastructure services provider.\nThe split will transform IBM from a company that pulls half of its revenue from services to a firm with its software and solutions businesses generating over half of its revenue on a recurring basis.\nGlobal Business Services, which currently constitutes 22% of the company’s revenue, will account for over 40% of sales. Here it is important to note that the division grew revenue by 12% year over year in the last quarter.\nIBM will retain Red Hat and its solution provider business, the systems businesses, and its mission-critical public cloud service, and a software portfolio focused on big data, AI, and security.\nInitially, the two companies will each be the largest customer of the other.\nWhat remains to be known regarding the spinoff is how much debt each company will shoulder, and the share of the dividend that the companies will pay. Krishna stated the two companies will work together to sustain the current payout level.\nHas IBM Turned The Corner?\nAnyone who follows IBM knows the company has experienced an extended period of poor results. The following chart provides a record of the firm’s quarterly FCF over the last fourteen quarters.\nSource: Data from ycharts / chart by author\nWhile this is not proof positive that the company is back on track, the recent trend is at least encouraging.\nIn 2020, IBM generated $10.8 billion in free cash flow. Management guides for adjusted free cash flow of $11 billion to $12 billion in 2021. This excludes $3 billion in structural impacts related to the Kyndryl spinoff.\nThe CEO recently stated he expects IBM to generate $12 billion to $13 billion in FCF in 2022.\nDebt And Dividend\nWhile investors can rightfully complain of a variety of management moves over the years, the firm has maintained a reasonable debt profile while engaging in a number of acquisitions.\nThe company has reduced the debt by roughly $18 billion since its peak in mid-2019. IBM maintains an investment level credit rating, and the following chart provides a record of the company’s progress paying down debt of late.\nSource: IBM Presentation\nIBM has a yield of 4.64%, a payout ratio a bit below 61%, and a 5 year dividend growth rate of 4.26%. As previously noted, following the spinoff of Kyndryl, the two companies will team to provide a payout equivalent to the current dividend.\nIs IBM Stock Overvalued?\nIBM shares trade for $141.13. The average 12 month price target of 8 analysts is $153.50. The price target of the 3 analysts rating the stock since the last earnings report is $151.33.\nIBM has a P/E of 24.05x and a forward P/E of 17.67x. This compares to its five year averages of 16.42x and 13.25x respectively. It is well below the sector average which is in the low thirties for both metrics.\nThe 3 to 5 year PEG provided by Seeking Alpha Premium is 1.16x. Schwab calculates a PEG of 1.49x, and Yahoo does not provide a PEG ratio.\nI believe the current P/E ratios for the stock reflect investors anticipating increased growth for IBM once the spinoff is complete. The PEG ratios show the stock is reasonably valued.\nIs IBM Stock A Good Long-Term Investment?\nIBM has an entrenched but evolving position among many of the largest companies on the globe. Unfortunately, the cloud, which is seen as the company’s primary avenue for growth, could also lead to a slow deterioration in some of the firm’s legacy businesses.\nThat the cloud business has been growing at a rapid pace is manifest: IBM can now boast of over 3,200 clients using the firm’s hybrid cloud platform. That is nearly four times the number just prior to the Red Hat acquisition.\nIf management’s claims are accurate, the hybrid cloud platform will create robust growth in the software and services division’s revenues. When combined with the spinoff of Kyndryl’s slow growing managed infrastructure services business, it is reasonable to believe IBM will witness increased growth.\nIBM has a solid balance sheet, a robust yield, and when viewed using PEG ratios as a basis for valuing the stock, the shares are trading at a bit of a discount.\nAll considered, I rate IBM as a BUY.\nI think the worst case short to mid-term scenario is that the company experiences slow growth while investors collect a rather robust dividend.","news_type":1},"isVote":1,"tweetType":1,"viewCount":407,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":174583132,"gmtCreate":1627111214926,"gmtModify":1703484445358,"author":{"id":"3582979888637176","authorId":"3582979888637176","name":"bongy","avatar":"https://static.tigerbbs.com/195b714f9064df876c81e7a8d18aa4ea","crmLevel":2,"crmLevelSwitch":0,"followedFlag":false,"idStr":"3582979888637176","authorIdStr":"3582979888637176"},"themes":[],"htmlText":"Cool","listText":"Cool","text":"Cool","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/174583132","repostId":"1191636755","repostType":4,"repost":{"id":"1191636755","kind":"news","pubTimestamp":1627084309,"share":"https://ttm.financial/m/news/1191636755?lang=&edition=fundamental","pubTime":"2021-07-24 07:51","market":"us","language":"en","title":"Tesla Earnings Are Coming. Here’s the One Number That Matters.","url":"https://stock-news.laohu8.com/highlight/detail?id=1191636755","media":"Barrons","summary":"Tesla’s second-quarter earnings are just around the corner, and investors should gear up for a likel","content":"<p>Tesla’s second-quarter earnings are just around the corner, and investors should gear up for a likely very complicated report.</p>\n<p>There are a lot of moving parts, even more than usual for the world’s most valuable car company and its iconoclast CEO Elon Musk. Figuring out if the stock will go up or down, however, shouldn’t be all that difficult.</p>\n<p>The EV pioneer will report after the close of trading on Monday,July 26. Wall Street is looking for Tesla to report about 94 cents in per-share earnings from $11.5 billion in sales, according to FactSet. Beating analyst estimates is important, almost required, for any stock to remain stable in post-earnings trading. That’s true for Tesla as well.</p>\n<p>There are plenty of factors that will contribute to bottom-line earnings—the global semiconductor shortage,vehicle pricing, vehicle gross profit margins, and the level of profitability in Tesla’s battery storage business. In the end, however, investors will want to see a record in operating profits—no matter how it happens. That’s what could break shares out of their recent range.</p>\n<p><img src=\"https://static.tigerbbs.com/eb9cfd5cbe6d36d06167f82af45447d1\" tg-width=\"869\" tg-height=\"580\" width=\"100%\" height=\"auto\"></p>\n<p>Tesla reported more than $800 million in operating profits in the 2020 third quarter, and the stock more than doubled to around $860 in the three-month span that followed. But since operating profit growth largely paused in the subsequent quarters, shares have traded down from roughly $860 to around $640 recently. Profit stagnation has meant stock stagnation, too.</p>\n<p>The good news for Tesla bulls is Wall Street is projecting a fresh record: Operating profit is expected to be $835 million for the second quarter, driven by strong deliveries. The 2021 second quarter marked the first time Tesla delivered more than 200,000 vehicles in a single quarter.</p>\n<p>After earnings are digested, there should be endless arguments among bulls and bears about the quality of earnings. For instance, one way Tesla generates sales is by selling regulatory credits—which it earns by producing more than its fair share of electric vehicles. The company generated $518 million in first-quarter credit sales, which helped Tesla beat earnings estimates. There is always debate about what is the “normal” amount of credit sales and when will those sales dry up. Eventually, both the bulls and bears expect other auto makers to sell their own EVs, cutting off that source of revenue for Tesla.</p>\n<p>There is also the issue of Bitcoin. Tesla recognized a small gain on its Bitcoin holdings in the first quarter, but the cryptocurrency’s prices have fallen by roughly half since their April peak. That means there is a chance of a small loss. How investors react is anyone’s guess, but don’t expect Tesla to sell out of its Bitcoin position. Musk continues to indicate his company will transact in the cryptocurrency when Bitcoin mining uses more sustainable power.</p>\n<p>Investors will also want to know when Tesla’s new Germany plant and Austin, Texas facility will start delivering cars. The Austin plant will build Tesla’s Cybertruck. There will also likely be questions about advances in Tesla’s driver-assistance functions—the company recently started selling its driver-assistance software as a subscription—and how much money the company could make from its charging network. Musk tweeted this week Tesla would open its charging network to other EVs down the road.</p>\n<p>All those topics and more should come up on the earningsconference callscheduled for 5:30 p.m. ET on Monday. Year to date, Tesla stock is down roughly 9%, trailing behind comparable 17% and 15% respective gains of theS&P 500andDow Jones Industrial Average.Still, Tesla shares have had a strong run, up about 112% over the past 12 months.</p>","source":"lsy1601382232898","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Tesla Earnings Are Coming. Here’s the One Number That Matters.</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTesla Earnings Are Coming. Here’s the One Number That Matters.\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-24 07:51 GMT+8 <a href=https://www.barrons.com/articles/tesla-stock-earnings-preview-51627061822?mod=hp_DAY_Theme_2_1><strong>Barrons</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Tesla’s second-quarter earnings are just around the corner, and investors should gear up for a likely very complicated report.\nThere are a lot of moving parts, even more than usual for the world’s ...</p>\n\n<a href=\"https://www.barrons.com/articles/tesla-stock-earnings-preview-51627061822?mod=hp_DAY_Theme_2_1\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"TSLA":"特斯拉"},"source_url":"https://www.barrons.com/articles/tesla-stock-earnings-preview-51627061822?mod=hp_DAY_Theme_2_1","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1191636755","content_text":"Tesla’s second-quarter earnings are just around the corner, and investors should gear up for a likely very complicated report.\nThere are a lot of moving parts, even more than usual for the world’s most valuable car company and its iconoclast CEO Elon Musk. Figuring out if the stock will go up or down, however, shouldn’t be all that difficult.\nThe EV pioneer will report after the close of trading on Monday,July 26. Wall Street is looking for Tesla to report about 94 cents in per-share earnings from $11.5 billion in sales, according to FactSet. Beating analyst estimates is important, almost required, for any stock to remain stable in post-earnings trading. That’s true for Tesla as well.\nThere are plenty of factors that will contribute to bottom-line earnings—the global semiconductor shortage,vehicle pricing, vehicle gross profit margins, and the level of profitability in Tesla’s battery storage business. In the end, however, investors will want to see a record in operating profits—no matter how it happens. That’s what could break shares out of their recent range.\n\nTesla reported more than $800 million in operating profits in the 2020 third quarter, and the stock more than doubled to around $860 in the three-month span that followed. But since operating profit growth largely paused in the subsequent quarters, shares have traded down from roughly $860 to around $640 recently. Profit stagnation has meant stock stagnation, too.\nThe good news for Tesla bulls is Wall Street is projecting a fresh record: Operating profit is expected to be $835 million for the second quarter, driven by strong deliveries. The 2021 second quarter marked the first time Tesla delivered more than 200,000 vehicles in a single quarter.\nAfter earnings are digested, there should be endless arguments among bulls and bears about the quality of earnings. For instance, one way Tesla generates sales is by selling regulatory credits—which it earns by producing more than its fair share of electric vehicles. The company generated $518 million in first-quarter credit sales, which helped Tesla beat earnings estimates. There is always debate about what is the “normal” amount of credit sales and when will those sales dry up. Eventually, both the bulls and bears expect other auto makers to sell their own EVs, cutting off that source of revenue for Tesla.\nThere is also the issue of Bitcoin. Tesla recognized a small gain on its Bitcoin holdings in the first quarter, but the cryptocurrency’s prices have fallen by roughly half since their April peak. That means there is a chance of a small loss. How investors react is anyone’s guess, but don’t expect Tesla to sell out of its Bitcoin position. Musk continues to indicate his company will transact in the cryptocurrency when Bitcoin mining uses more sustainable power.\nInvestors will also want to know when Tesla’s new Germany plant and Austin, Texas facility will start delivering cars. The Austin plant will build Tesla’s Cybertruck. There will also likely be questions about advances in Tesla’s driver-assistance functions—the company recently started selling its driver-assistance software as a subscription—and how much money the company could make from its charging network. Musk tweeted this week Tesla would open its charging network to other EVs down the road.\nAll those topics and more should come up on the earningsconference callscheduled for 5:30 p.m. ET on Monday. Year to date, Tesla stock is down roughly 9%, trailing behind comparable 17% and 15% respective gains of theS&P 500andDow Jones Industrial Average.Still, Tesla shares have had a strong run, up about 112% over the past 12 months.","news_type":1},"isVote":1,"tweetType":1,"viewCount":272,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":9954432867,"gmtCreate":1676533200560,"gmtModify":1676534059619,"author":{"id":"3582979888637176","authorId":"3582979888637176","name":"bongy","avatar":"https://static.tigerbbs.com/195b714f9064df876c81e7a8d18aa4ea","crmLevel":2,"crmLevelSwitch":0,"followedFlag":false,"idStr":"3582979888637176","authorIdStr":"3582979888637176"},"themes":[],"htmlText":"Agreed!","listText":"Agreed!","text":"Agreed!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9954432867","repostId":"2311646394","repostType":2,"isVote":1,"tweetType":1,"viewCount":325,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"lives":[]}
