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IBM stock is going through a transformative period: Market analyst

IBM stock is going through a transformative period: Market analyst

IBM shares soared after the company announced plans to spin off its IT infrastructure unit to focus on its cloud computing business.

But even with Thursday’s surge, the stock still trades at a valuation far below its peers. IBM’s 11 times forward price-to-earnings ratio is cheaper than the XLK tech ETF’s 25 times multiple and the SKYY cloud ETF’s 35 times multiple.

This could be the beginning of a major transformative period for the company, Tocqueville Asset Management portfolio manager John Petrides told CNBC’s “Trading Nation” on Thursday. He compared new IBM CEO Arvind Krishna to Microsoft CEO Satya Nadella’s leadership.

Nadella, Microsoft’s chief executive officer since 2014, has overseen the company’s own shift to cloud services. Revenue in Microsoft’s cloud business increased 17% to $13.4 billion in its fourth quarter ended June, accounting for more than one-third of overall sales. IBM’s cloud business generates 30% of total revenue.

“What we’re seeing here is IBM really commit to the cloud, shed off one of its lower-margin business, going into faster top-line growth which has been plaguing the company for what feels like an eternity now,” Petrides said.

IBM shares also pay investors while they wait for the stock to catch up to the rest of the high-flying tech names, he added.

“We’re buying IBM where you’re getting a 5% yield. So tech has been such a massive performer year to date, it’s hard to find value. Investors have been waiting on the sidelines for IBM in my opinion because they’ve been waiting for this show-me story post the Red Hat acquisition,” he said, referring to IBM’s 2019¬†purchase of the¬†open-source enterprise software maker for $34 billion. “[This] is a good sign that the stock is moving in the right direction.”

Mark Newton, president of Newton Advisors, told CNBC he

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