IBM beat all its large-cap tech peers in 2022 as investors shunned growth for safety
IBM CEO Arvind Krishna speaks at an IBM facility in Poughkeepsie, New York, on Oct. 6, 2022. IBM announced $20 billion in investments during President Biden’s visit that will go toward research and development and the manufacturing of semiconductors, mainframe technology, artificial intelligence and quantum computing in the Hudson Valley.
Dana Ullman | Bloomberg | Getty Images
IBM isn’t often described as a hot company. But in a year that saw investors abandon all major tech stocks, Big Blue was in the green.
The Nasdaq is closing out its worst year since 2008. High gas prices, soaring inflation and the Federal Reserve’s steady pace of rate increases have punished growth stocks and favored more mature, less volatile names that are viewed as more recession-resistant.
Tech names that thrived during the Covid days suffered the most as the economy reopened and consumers returned to many of their old habits.
Among U.S. tech companies valued at $50 billion or more, IBM was one of only two to generate positive returns in 2022. As of Friday’s close, the stock was up 6% for the year. The other gainer is VMware, which is up 5% because it agreed in May to be acquired by Broadcom for $61 billion.
While Meta, Amazon and Tesla have been pummeled, investors turned to 111-year-old IBM, betting on its stable earnings, alongside energy stocks such as Exxon Mobil, health-care names including Merck and industrials Northrop Grumman and Lockheed Martin.
IBM beats Big Tech in 2022
CNBC
IBM is “trading well above its historical range,” Bernstein Research analysts wrote in a Dec. 20 note to clients. The firm has a hold rating on the stock.
Nobody will mistake IBM for a growth stock. Expansion is consistently in the single digits, and last year the company spun off Kyndryl, its managed infrastructure services business, into a separate publicly traded entity. That cut head count by about 90,000.
But IBM generated $752 million in free cash flow in the latest quarter, up 25% from a year earlier, and paid out $1.5 billion in dividends. Third-quarter earnings and revenue both topped estimates, and the company raised its forecast for the full year.
Crawford Investment Counsel in Atlanta, which focuses on income and dividends, looked at IBM in 2016 and concluded that it would be too early for a major investment, said Aaron Foresman, an equity analyst at the firm.
‘Much closer to their vision’
Crawford’s thesis changed in 2019, after IBM bought faster-growing Red Hat for $34 billion. The firm, which today has $6.7 billion under management, boosted its IBM stake from $2 million to $30 million and kept buying until its holdings reached $109 million.
IBM took a hybrid approach to the cloud under CEO Arvind Krishna, who succeeded Ginni Rometty at the helm in 2020. After struggling to gain scale as a cloud infrastructure provider, the company bet that enterprises would use on-premises data center infrastructure as well as the public cloud, rather than relying entirely on one approach or the other.
“Three years later, it’s much closer to their vision than everything on public cloud,” Foresman said. His firm sold 3% of its shares in the second and third quarter of this year.
Consulting remains a huge part of IBM’s business, accounting for one-third of revenue. In that realm, IBM partners with the big cloud providers, rather than strictly competing with them. The company has a backlog of business with Microsoft worth more than $1 billion, and an even bigger one with Amazon, Krishna said in a conversation with RBC CEO Dave McKay in November.
IBM also made technological advances in 2022, introducing the z16 mainframe computer. When a new mainframe hits, many clients upgrade. That leads to greater hardware revenue and highly profitable transaction processing software to run on the machines. IBM’s prior mainframe boom cycle started in September 2019.
While IBM stayed away from any splashy high-priced acquisitions this year, it announced some smaller deals to enhance certain capabilities. Earlier this month, IBM agreed to buy Octo, a consulting company based in Virginia that targets government agencies. Terms weren’t disclosed. It also absorbed consulting companies Dialexa and Sentaca this year.
Foresman described the purchases as an appropriate use of capital and “so small that they’re not necessarily disclosing transaction multiples.”
Still, Krishna recognizes that the economic backdrop isn’t ideal. He said in October that higher prices have led to “some caution creeping into the conversations” in Europe, where the company has to prepare for a downturn. In the Americas, where IBM gets about 53% of revenue, the business climate is “very robust,” he said.
The Bernstein analysts said the stock’s direction from here might simply ride on the state of the economy, rather than any major catalyst inside the company.
“Given its defensive characteristics and historical performance, we believe that IBM is likely to fare well if we continue to have pressured markets, and likely to lag major indices if we enter a recovery period,” they wrote.
IBM’s model through 2024 calls for mid-single-digit revenue growth, translating into free cash flow growth in the high single digits.
That’s good enough for investors who look for safety in their equity bets.
“Combined with mid-single-digit revenue growth, a couple points better than that on EPS and a 5% dividend yield is — you know, that’s not a home run, but it’s well within our expectations for what we’re trying to accomplish,” Foresman said.
WATCH: Technology is a deflationary answer to today’s macro struggles, says IBM CEO Arvind Krishna
Shares of advertising technology company AppLovin and stock trading app Robinhood Markets each jumped about 7% in extended trading on Friday after S&P Global said the two will join the S&P 500 index.
The changes will go into effect before the beginning of trading on Sept. 22, S&P Global announced in a statement. AppLovin will replace MarketAxess Holdings, while Robinhood will take the place of Caesars Entertainment.
In March, short-seller Fuzzy Panda Research advised the committee for the large-cap U.S. index to keep AppLovin from becoming a constituent. AppLovin shares dropped 15% in December, when the committee picked Workday to join the S&P 500. Robinhood, for its part, saw shares slip 2% in June when it was excluded from a quarterly rebalancing of the index.
The S&P 500 already has a heavy concentration of large technology companies. Datadog and DoorDash entered earlier this year.
It’s normal for stocks to go up on news of their inclusion in a major index such as the S&P 500. Fund managers need to buy shares to reflect the updates.
AppLovin and Robinhood both went public on Nasdaq in 2021.
Robinhood has been a favorite among retail investors who have bid up shares of meme stocks such as AMC Entertainment and GameStop.
AppLovin itself became a stock to watch, with shares gaining 278% in 2023 and over 700% in 2024. As of Friday’s close, the stock had gained only 51% so far in 2025. AppLovin’s software brings targeted ads to mobile apps and games.
Earlier this year, AppLovin offered to buy the U.S. TikTok business from China’s ByteDance. U.S. President Donald Trump has repeatedly extended the deadline for a sale, most recently in June.
At Robinhood’s annual general meeting in June, a shareholder asked Vlad Tenev, the company’s co-founder and CEO, if there were plans for getting into the S&P 500.
“It’s a difficult thing to plan for,” Tenev said. “I think it’s one of those things that hopefully happens.”
He said he believed the company was eligible.
Shares of MarketAxess, which specializes in fixed-income trading, have fallen 17% year to date, while shares of Caesars, which runs hotels and casinos, are down 21%.
AppLovin and Robinhood ytd stock chart.
U.S. Federal Trade Commission Commissioner Rebecca Slaughter raised questions on Friday about the status of an artificial intelligence chatbot complaint against Snap that the agency referred to the Department of Justice earlier this year.
In January, the FTC announced that it would refer a non-public complaint regarding allegations that Snap’s My AI chatbot posed potential “risks and harms” to young users and said it would refer the suit to the DOJ “in the public interest.”
“We don’t know what has happened to that complaint,” Slaughter said on CNBC’s ‘The Exchange.” “The public does not know what has happened to that complaint, and that’s the kind of thing that I think people deserve answers on.”
Snap’s My AI chatbot, which debuted in 2023, is powered by large language models from OpenAI and Google and has drawn scrutiny for problematic responses.
The DOJ did not immediately respond to a request for comment. Snap declined to comment.
Slaugther’s comments came a day after President Donald Trump held a White House dinner with several tech executives, including Google CEO Sundar Pichai, Meta CEO Mark Zuckerberg and Apple CEO Tim Cook.
“The president is hosting Big Tech CEOs in the White House even as we’re reading about truly horrifying reports of chatbots engaging with small children,” she said.
Trump has been attempting to remove Slaughter from her FTC position, but earlier this week, U.S. appeals court allowed her to maintain her role.
On Thursday, the president asked the Supreme Court to allow him to fire her from the post.
FTC Chair Andrew Ferguson, who was selected by Trump to lead the commission, publicly opposed the complaint against Snap in January, prior to succeeding Lina Khan at the helm.
At the time, he said he would “release a more detailed statement about this affront to the Constitution and the rule of law” if the DOJ were to eventually file a complaint.
WATCH: FTC Commissioner Rebecca Slaughter on President Trump’s latest attempt to fire her.
Technology
Google leads monster week for tech, pushing megacaps to combined $21 trillion in market cap
Alphabet and Google CEO Sundar Pichai meets with Polish Prime Minister Donald Tusk at Google for Startups in Warsaw, Poland, on February 13, 2025.
Klaudia Radecka | Nurphoto | Getty Images
From the courtroom to the boardroom, it was a big week for tech investors.
The resolution of Google’s antitrust case led to sharp rallies for Alphabet and Apple. Broadcom shareholders cheered a new $10 billion customer. And Tesla’s stock was buoyed by a freshly proposed pay package for CEO Elon Musk.
Add it up, and the U.S. tech industry’s eight trillion-dollar companies gained a combined $420 billion in market cap this week, lifting their total value to $21 trillion, despite a slide in Nvidia shares.
Those companies now account for roughly 36% of the S&P 500, a proportion so great by historical standards that Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told CNBC by email, “there are no comparisons.”
There was a certain irony to this week’s gains.
Alphabet’s 9% jump on Wednesday was directly tied to the U.S. government effort to diminish the search giant’s market control, which was part of a years-long campaign to break up Big Tech. Since 2020, Google, Apple, Amazon and Meta have all been hit with antitrust allegations by the Department of Justice or Federal Trade Commission.
A year ago, Google lost to the DOJ, a result viewed by many as the most-significant antitrust decision for the tech industry since the case against Microsoft more than two decades earlier. But in the remedies ruling this week, U.S. District Judge Amit Mehta said Google won’t be forced to sell its Chrome browser despite its loss in court and instead handed down a more limited punishment, including a requirement to share search data with competitors.
The decision lifted Apple along with Alphabet, because the companies can stick with an arrangement that involves Google paying Apple billions of dollars per year to be the default search engine on iPhones. Alphabet rose more than 10% for the week and Apple added 3.2%, helping boost the Nasdaq 1.1%.
Analysts at Wedbush Securities wrote in a note after the decision that the ruling “removed a huge overhang” on Google’s stock and a “black cloud worry” that hung over Apple. Further, they said it clears the path for the companies to pursue a bigger artificial intelligence deal involving Gemini, Google’s AI models.
“This now lays the groundwork for Apple to continue its deal and ultimately likely double down on more AI related partnerships with Google Gemini down the road,” the analysts wrote.
Mehta explained that a major factor in his decision was the emergence of generative AI, which has become a much more competitive market than traditional search and has dramatically changed the market dynamics.
New players like OpenAI, Anthropic and Perplexity have altered Google’s dominance, Mehta said, noting that generative AI technologies “may yet prove to be game changers.”
On Friday, Alphabet investors shrugged off a separate antitrust matter out of Europe. The company was hit with a 2.95-billion-euro ($3.45 billion) fine from European Union regulators for anti-competitive practices in its advertising technology business.
Broadcom pops
While OpenAI was an indirect catalyst for Google and Apple this week, it was more directly tied to the huge rally in Broadcom’s stock.
Following Broadcom’s better-than-expected earnings report on Thursday, CEO Hock Tan told analysts that his chipmaker had secured a $10 billion contract with a new customer, which would be the company’s fourth large AI client.
Several analysts said the new customer is OpenAI, and the Financial Times reported on a partnership between the two companies.
Broadcom is the newest entrant into the trillion-dollar club, thanks to the company’s custom chips for AI, already used by Google, Meta and TikTok parent ByteDance. With Its 13% jump this week, the stock is now up 120% in the past year, lifting Broadcom’s market cap to around $1.6 trillion.
“The company is firing on all cylinders with clear line of sight for growth supported by significant backlog,” analysts at Barclays wrote in a note, maintaining their buy recommendation and lifting their price target on the stock.
For the other giant AI chipmaker, the past week wasn’t so good.
Nvidia shares fell more than 4% in the holiday-shortened week, the worst performance among the megacaps. There was no apparent negative news for Nvidia, but the stock has now dropped for four consecutive weeks.
Still, Nvidia remains the largest company by market cap, valued at over $4 trillion, with its stock up 56% in the past 12 months.
Microsoft also fell this week and is on an extended slide, dropping for five straight weeks. Shares are still up 21% over the last 12 months.
On the flipside, Tesla has been the laggard in the group. Shares of the electric vehicle maker are down 13% this year due to a multi-quarter sales slump that reflects rising competition from lower-cost Chinese manufacturers and an aging lineup of EVs.
But Tesla shares climbed 5% this week, sparked mostly by gains on Friday after the company said it wants investors to approve a pay plan for Musk that could be worth up to almost $1 trillion.
The payouts, split into 12 tranches, would require Tesla to see significant value appreciation, starting with the first award that won’t kick in until the company almost doubles its market cap to $2 trillion.
Tesla Chairwoman Robyn Denholm told CNBC’s Andrew Ross Sorkin the plan was designed to keep Musk, the world’s richest person, “motivated and focused on delivering for the company.”
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