On top of that, IBM CEO Arvind Krishna recently joined the White House and members of Congress in endorsing the Endless Frontier Act. The bill would direct some $100 billion in spending to the National Science Foundation as the U.S. responds to competition from China and Russia.
Here’s what you should know about IBM stock and the larger scene.
The Details: IBM Stock and the ‘Tech Trifecta’
Demand for increased chip performance and energy efficiency continues to rise. What’s driving it? The “tech trifecta”: Cloud, AI (Artificial Intelligence), and IoT (Internet of Things). IBM’s new 2nm chip technology helps address this growing demand, though it is still several years away from full-scale manufacturing. Ultra-low nanometer chips consume less power, take up less space and reduce cost.
- Better performance and energy efficiency. IBM’s 2-nanometer chip improves performance by 45% over today’s 7-nanometer designs and uses 75% less energy.
- Push for more U.S. chip manufacturing amidst a global chip shortage. The mandate: boost American chip manufacturing to protect national security and economic competitiveness. A global chip shortage highlights the importance of the U.S. having its own domestic capacity. This way it can rely less on foundries in China and Taiwan.
- Mainstream chip-makers Intel (NASDAQ:INTC) and Taiwan Semiconductor (NYSE:TSM) have announced plans to build ultra-low nanometer chip plants in the coming years.
- Intel also recently recommitted to continuing in-house chipmaking and vowed to invest $20 billion to build two new chipmaking plants in Arizona.
- IBM’s Krishna called for fully funding the National Semiconductor Technology Center authorized by Congress last year. Krishna suggested placing it in Albany, New York, where IBM has a research center.
- Covid-19 teaches us it’s time to focus on American science. IBM endorsed the Endless Frontier Act, recently re-introduced by hometown denizen and Senate Majority Leader Chuck Schumer (D-NY) and Todd Young (R-IN). The goal?
- Reverse the serious disinvestment in science and research that has undermined U.S. healthcare and national security.
- Invest in innovative research by mobilizing the country’s scientific talent in universities, research labs and the private sector.
- This is because federal funding for basic research has steadily declined since the 1960s. It now comprises less than 50% of all funding. This decline is in stark contrast to countries like China and Russia, which are steadily increasing government funding.
IBM Stock News: How to Get an Edge
- Buy semi equipment manufacturers on the dip. Coming out of a two-year downturn, the industry under-invested in back-end equipment. Now the semiconductor cycle is about to heat up. Companies that specialize in back-end semiconductor and electronics assembly equipment are going to be the first to ride a massive demand wave. New equipment is needed to manufacture ultra-low nanometer chips. This includes extreme ultraviolet (EUV) lithography and new deposition, etch, inspection and metrology technologies.
- This is a perfect time to buy Kulicke & Soffa (NASDAQ:KLIC), which is down over 10% this week as investors “sell the news.” Looking closer, KLIC handily beat earnings, guided higher and signaled strong demand.
- Other names poised to benefit are Advanced Energy Industries (NASDAQ:AEIS), ASML (NASDAQ:ASML), Ichor (NASDAQ:ICHR), Nova Measuring Instruments (NASDAQ:NVMI) and Onto Innovation (NYSE:ONTO).
- Get an early start and invest in AI. New processors from IBM and others will be an important ingredient in AI accelerators, specialized hardware designed to speed up AI applications. These include speech and natural language processing and speech-to-text. Look for broader deployment of AI in unconventional areas like financial services, where it can be used for fraud detection. The best stocks to buy are those with proprietary tech in machine learning and neural networks.
- Wait before jumping back into auto stocks. While having bounced from pandemic lows, the chip shortage has caused a recent pullback in auto stocks, with Ford (NYSE:F), General Motors (NYSE:GM) and others having all cited problems. However, not everyone felt the impact equally this quarter.
- Volkswagen (OTCMKTS:VWAPY) stock dropped despite solid earnings and strong electric vehicle (EV) sales, warning of the impact of the chip shortage.
- Meanwhile, Volvo (OTCMKTS:VLVLY) breezed through earnings, reporting strong results despite a sizeable production decline in the first quarter. The shortage appears to have had limited impact for now, but it will likely cause more disruption in Q2 and potentially Q3. That means it may still be too soon to jump into these stocks.
The Bottom Line
IBM stock represents an innovative push toward efficient, ultra-low nanometer chips. However, this recent development also signals a bigger push into the technology trifecta of AI, IoT and Cloud.
Growth investors: don’t miss out on these multi-year investment cycles. Microsoft remains my favorite large-cap AI play, but there are plenty of small- and mid-cap ideas across all three areas. This is also a great time to buy semi equipment manufacturers on the recent selloff.
On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.