IBM stock plunged on Tuesday in its worst single day of trading ever. The question is, now: is this an IBM issue or a software-sector problem?
For investors trying to figure it out, Michael Burry says there are a few key earnings reports in the pipeline they should be watching.
“The Big Short” investor wrote on Wednesday that the dramatic plunge in IBM stock might amount to an overreaction on Wall Street, but upcoming earnings reports will reveal the answer.
“Today’s problem looks less problematic if management’s explanation is corroborated by other companies throughout earnings season,” he wrote on his Substack.
The problem in this case is IBM’s failure to adapt quickly and navigate the AI-driven market, as CEO Arvind Krishna discussed in a letter to shareholders on Tuesday.
While news of the company’s warning and the lackluster quarter was enough to send IBM stock into a nosedive, Burry said investors should be looking to some of IBM’s peers that are scheduled to report in the coming weeks to know if panic is warranted.
“SAP is one to watch,” he wrote. “ServiceNow is on July 29th, and Microsoft around then too. Wipro is on July 17th, Infosys on July 23r, Cognizant and Capgemini report in late July/early August. We will see if these companies also saw that revenue diversion at the end of the quarter.”
Burry noted that while he sees Accenture as the best comparison for IBM, the consulting giant doesn’t report earnings until September. While he compared IBM to Palantir in a different section of the note, he didn’t name as one to watch, though he reiterated his bearish stance on the AI stock.
Enterprise software and IT consulting services aren’t the only sections of the tech sector that Burry is keeping tabs on this earnings season, though. He also highlighted cybersecurity as a sector that could provide further insight for investors.
“Checkpoint on July 29th, Fortinet in early August, Palo Alto Networks in mid August, CrowdStrike and Zscaler in late August – All of these should report extra bump in revenues as well if IBM’s excuse on cybersecurity concerns being a distraction is accurate,” Burry said.
He raised the possibility, though, that despite IBM’s grim outlook, customers may not be abandoning it all together, rather temporarily shifting their spending, which other tech earnings report may confirm in the coming weeks.
“Validation of IBM’s reasons might suggest a mania in AI buildout parts is not a good reason to give up on IBM,” Burry added.
