Big Banks Cash In, IBM Crashes Out

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Lou Whiteman discuss:

• IBM’s terrible, horrible, no good, very bad day.
• Shifting spending habits from enterprise clients.
• America’s biggest banks are reaping huge windfalls.
• Mailbag: How to buy Treasuries?
• Mailbag: What to make of Toast?

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on July 14, 2026.

Tyler Crowe: Big banks are loving this market. Today on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors Lou Whiteman and Matt Frankel. As I hinted with the intro, we're going to get into the blockbuster quarter that just about every bank had that reported today, and it was pretty much anybody that is a major bank in the United States reported today, and it looked fantastic. We're also going to get into some reader emails. But first, we're going to start with the big news moment of the day. That is shares of IBM are down 26% as we are taping this show after the company issued preliminary results for the upcoming quarter that really were not in line with analyst expectations. Now, Lou, this was a big drop. I saw a Bloomberg headline earlier before we got on. It was the biggest drop since, I think, 1968 for the stock more than Black Monday in 1987. What was this big drop for what it seemed to me was a relatively modest revision to what we were seeing? There had to have been more to the story here?

Lou Whiteman: I think there is. How did you say, this isn't the full earnings release. This is preliminary. IBM, basically, all they warned is revenue is going to come in about 17.2 billion short of 17.9 billion. It's not a huge amount. I think what triggered the sell-off is the reasoning given CEO Arvind Krishna said, last few weeks of June, IBM saw clients shift capex towards hardware servers, memory storage, away from Big Blue. That's probably not just a last two weeks at a quarter thing, given the way the stock had traded up. I think that this is a head for the exit, sell the news, a move.

Tyler Crowe: Something in the difference of a $700 million change in revenue. The number sounds big, but again, if we're talking about 17 billion give or take a few hundred million. That's not a big deal. Now, Matt, the three of us did a live event for the Motley Fool back in San Diego a few months ago, and you made the case for IBM stock as one of your top picks right now. Now, I'm not trying to put you on full blast here because the stock is down, and let's all make fun of Matt. But does anything that announced today alter your thinking here. Like we said, this isn't a huge revision, but there seems to be some other stuff going on here.

Matt Frankel: Yes. First of all, I welcome being called out when I make a public call on a stock like this, and then something like today happens. As Lou said, the numbers themselves weren't too awful. That 17.2 billion versus 17.9 billion, that's not worthy of a 26% drop all by itself, but there is more to the story. Earnings per share came in at 293 versus expectations of 302, not worthy of a 26% drop. This would be IBM's worst single day ever, by the way. The previous biggest one-day drop they had was Black Monday in 1987, and this would exceed that.

The question that seems to be on investors’ minds and the one that is more worthy of the drop we're seeing is if the shift towards spending more on things like memory and other hardware is a temporary headwind or is it becoming a permanent problem for companies like IBM? Krishna's own explanation is that clients redirected their late July or late June capex towards servers, storage, and memory to lock in supply ahead of price hikes. Remember, we've seen Apple raise its prices recently, specifically because of memory. Same idea here. That sounds like a temporary reaction by IBM's customers to soaring memory prices. But on the other hand, Micron recently said that memory supply is going to be tight well into 2027, and we're starting to see these memory companies shift toward longer-term price-agreed service contracts. That's what scares me about this long term.

Tyler Crowe: This is what bugged me about it a little bit as well. If this was just a one-off, like things are going to get shifted maybe six or nine months down the road. Again, $700 million in sales, not the biggest thing. It seems like this is a big move for a short-term headwind. But when I see things like this, and let's all be honest here, there's a lot of institutional investors and high-frequency traders and might know a little bit more because they can pick up the phone and ask a few things. One of the things I think of is there might be more than one cockroach in the kitchen here. As we're looking forward, investors that are looking at IBM, maybe want to think like, Oh, man, maybe this is just a good time to buy some cheap shares because of what we've seen today, what else could be coming down the pipe that may assuage investors or maybe something that may signal it's an actual rough patch. What are some other things that we can look for that may be promising or signs of worse to come?

Matt Frankel: One thing we don't have yet, and Lou mentioned, this is just a preliminary report. We don't know everything. We don't have IBM's bookings yet, meaning the future revenue now is being committed to. That's been a big driver of the stock in recent quarters, especially on the AI side of the business. But judging by Krishna's generally negative tone that we've heard today, I'm not expecting the bookings number to look nearly as stellar as it did last quarter. The fact that they pre-announced is really the biggest red flag here, and that’s usually reserved for when things are especially bad.

My bottom line is that today's move makes sense. It isn't a reason to panic. To be transparent, IBM is a relatively small position in my portfolio right now. I'm planning to cautiously add to it a little bit if this price holds. The risk-reward makes a lot of sense to me, especially if you have a five-plus-year time horizon. At that San Diego event you mentioned, I talked about things like how IBM's quietly becoming the quantum computer leader as part of my thesis. But I'm going to be watching their full earnings report when it comes out on July 22, very closely. That's my birthday, and that's how much I'm paying attention to this. I'm still going to be reading it.

Lou Whiteman: I think it's important to mention just when we talk about it on sale today. Basically, the drop means we’re back to where we were in mid-May. Before people yell, go out, it's a buying opportunity. I do think that perspective is needed. The real question here, as Matt hinted at this is, is that there is a way to spin this as it's a temporary phenomena, and it will pass. There is also a way to read this as what IBM is selling isn't as important to the end customer as what they are buying. There's almost a question about, with consumers we talk about staples and discretionary. There is a way to spin this that IBM is in the discretionary bucket and not the staple bucket here. I don't know if that is the right reading, but I think that's a word of caution, and you think about this, you can't spend all the money on the world on everything. At the end of the day, corporations have to make choices. The choices they made in this quarter did not benefit IBM.

Matt Frankel: I would agree with that that IBM is more in the discretionary basket than consumer staples, especially when it comes to what we're talking here. You can hire all the AI consultants you want to. If you don't have enough memory to keep your systems going, that really doesn't matter. When it comes to what their clients are spending money on, it is more of a discretionary thing, and that's why we're seeing revenue flow during this AI cycle.

Tyler Crowe: As Lou said, let's keep this all in perspective. Over the past three years, IBM is beating the market. Over the past five years, the IBM is beating the market on a total performance basis. Like you said, it's about the same where as it was in May. It's about the same where it was in January. 2026 has not been IBM's shining year so far. But if we start pulling back the carton, things are still looking OK. We'll have to see whether or not this is a foreboding sign or maybe just a temporary road block, but we will see. Coming up next, we're going to really jump into bank earnings.

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Tyler Crowe: I was checking the earnings calendar for today, and of course, we had all the Big Banks, and then there was one other company, Fastenal, which I found funny. It was almost like one of these things is not like the other situation where it's like, we're going to talk about gigantic banks, and then an industrial parts distributor. But considering how robust and beating expectations that pretty much every bank posted, it seemed like it was the more appropriate thing to talk about than this small industrial parts manufacturer, which, maybe for another time.

Today, JP Morgan, Bank of America, Wells Fargo, Goldman Sachs, and Citigroup all reported earnings, and all of them reported better than expected results. I think the theme of this quarter was massive gains in equity trading. I think Goldman Sachs led the way, where they brought in $7.5 billion in equities trading this quarter alone. Now, we can say that it was stock volatility and the SpaceX IPO that resulted in some one-off gains. But are there some less discussed themes that led to all these companies posting such good results?

Matt Frankel: Yes, you're right, Tyler, that the results were generally excellent, and they're not just typical earnings beats here. JPMorgan Chase reported $7.70 in earnings per share. That's almost $2 more than expected. They beat revenue expectations by about $7 billion, not even close. It's not just investment banking. Wells Fargo, their earnings beat by a significant margin, even though they have a very small investment bank. I push back a bit when it comes to equity trading, on the one-off framing that you just said around, the volatility in the SpaceX IPO. We're seeing M&A at a level that we haven't seen since 2021. Global M&A was $3 trillion in the first half, so it wasn't just one deal or IPO. It's a general industrywide trend.

The question is how sustainable is it? But to more directly answer your question, one thing that I'm not seeing discussed that much is the net interest income side of this. Even with the Fed essentially on hold right now, the banks are generally raising their net interest income expectations. JPMorgan Chase they’re expecting $2.5 billion more in full-year net interest income than they were in April. They're seeing strong loan growth. The internal rate dynamics, meaning what they're paying on deposits versus what they're getting on loans is better than expected. There are a few other big themes, wealth management inflows across the board. Investors are putting money to work that had been on the sidelines. JP Morgan reported 44,000 "first-time investors.” Goldman's assets under management grew by 20% year over year, and the market isn't up by 20%. More importantly, credit quality is holding up better than we expected. The big banks, they're reporting lower than expected charge offs almost across the board. It shows that despite some major economic fears inflation, the Iran war, things like that, consumers and businesses are still staying pretty healthy.

Lou Whiteman: Matt did a great job breaking it down. I'll just make a couple of quick points. One, on net interest margin. Higher for longer works with banks. I'm going to just go up and scream that from the hilltops again. Financials makes so much sense to me right now. Now, where they are valued, especially in the regional banks, I think let's learn a lesson from this in terms of what the interest rate cycle means for banks. The other thing, let's just do a special shout out for Citi. Citi is usually the butt of a joke when we're discussing banks. They have a long history of screwing things up. But CEO Jane Fraser, the restructuring program seems to be working. Their hidden goals ahead of schedule. They raised the dividend by 12%, announced a 30 billion with a B share buyback program. Citi is the laggard of this group in terms of multiples. The investor takeaway here is maybe it's time to take Citi seriously. Maybe it's time to give them a look.

Tyler Crowe: Matt, to your point, saying it wasn't necessarily a one-off event, but it certainly does feel like a vibes event. Like you said, M&A activity is high, IPO activity is high. Money is moving off the sidelines to use the term, the animal spirit seems to be really hitting everybody right now, and everybody seems to be cashing in. Of course, the house tends to win, and the house, in this case, is the Big Banks. I want to drill into something a little bit more specific, though, and it was a few weeks back. The banks, all of them, went through their stress test, basically, working with regulators to figure out how much capital you need to keep on the books in the event of a credit event, a lot to do with Dodd-Frank, back after the great financial crisis, just in making sure that we don't run into the same problems we had again. Most of them passed with flying colors this time, in part because the regulatory stress test wasn’t quite as robust as it has been in years past. So much so that there were discussions at the time about accelerated buybacks and other ways of releasing capital that was on the balance sheet for safety reasons. Did that play any part in these results, and that has all these stocks doing incredibly well, or is that maybe just a later down the road story?

Lou Whiteman: It wouldn't have played a part in the results. It might be part of the enthusiasm today, although, look, the bank's got a nice boost when it was announced. I think why we're seeing the stocks moving higher, it's a simple answer. It's today's results. If one bank shows resilience, that's great for that one bank. But the across-the-board positivity, that implies that it wasn't a one-quarter fluke. It wasn't a one-time thing from anyone. There's a lot of fear in nervousness when it comes to financials right now. I think just the across-the-board success today, that should alleviate some of that nervousness.

Tyler Crowe: Coming up after the break, we're going to jump into the mailbag.

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Tyler Crowe: Hey, everyone, just a quick reminder, if you want to ask a question to us and have it read live on air, go ahead and send email us at podcasts@fool.com. That's podcast with S at fool.com. Three request as always. Keep it Foolish. Keep it short enough. I can read on air and try not to ask any individual advice, so we don't get in trouble with the SEC. We normally only do one, but we're going to do a two for today because we actually got a little bit of fan mail for Lou on this one, because somebody apparently is a big fan of you talking about T-bills either here on the podcast or in some of our live appearances that we do for members over at The Motley Fool. Lou, the question comes from Marianne and says, Lou often mentions that he parks money in T-bills. Could you give us a tutorial on how to actually buy T-bills? Lou, take it away.

Lou Whiteman: Sure. Well, first off, the argument for it is, it doesn't replace equities. But look, right now, I'm getting almost 4% on six-month bills. If that's better than most online savings accounts, so why not just chase the yield? As far as how you buy them, a couple of pointers: you can buy treasuries through the U.S. government at treasurydirect.gov, or you can do it through most brokerages. There isn't a different price or different rate, so it's really how you want to do it. I buy through Vanguard, but I know some people like to separate it out. I've heard good things about Treasury Direct. That's whatever you want to do. Actual user experience varies by brokerage.

It's very similar to buying stocks, though. You just click Buy bonds, select Treasuries instead of Corporates. You can buy existing treasuries on the open market. But what I do is I buy new issues and just hold the maturity. The most confusing thing, or the thing you might want to look at, is the way they’re priced. You buy new issues in $1,000 increments, but you don't pay face value. You pay the amount before interest. If you pay, say, 980 bucks today and get 1,000 bucks back in six months, for example, that's the most confusing part. Other than that, pretty straightforward. Again, it's just as an alternative to savings accounts when the rates are better, why not take advantage of the rate?

Tyler Crowe: Well, Marianne, I hope that answers your question. Back to the stock-related ones, we got a question from Brian, and he really went out of his way to say that he’s from corn country of Illinois and not just some other part of Illinois. Brian asks, guys, what is up with Toast? I've owned it for about two years. Stocks down quite a bit. Motley Fool podcast and not to Brian's email, but in a lot of other places women Motley Fool's extended Universe of Media. We've talked positively about Lee, and it's been used rather ubiquitously. I think it has a decent market share right now. Brian asked, restaurant parking lots usually seem full. I'm aware costs have increased, and margins are tight. Is this a lost cause stock Toast? I usually hang up stocks a couple of years. What are your current thoughts on Toast?

Matt Frankel: I'm a fan of Toast. To be fair, I'm one of the ones that you're referring to that usually speaks positively of it, so that's probably not a surprise. But the growth story here is still intact, despite any AI disruption fears. Annual recurring revenue grew by 26% in the last quarter. They added 7,000 new locations, so it's a product that's still resonating with customers. Their margins are excellent. Their operating margin not adjusted was above 20% for the first time ever in the most recent quarter. They're aggressively buying back stock, so the management clearly thinks the stock is underprice. The bear case here with all software as a service businesses like this, is that AI agents are eventually going to commoditize it and drive down users, drive down pricing power, things like that.

Toast is nicely insulated from this for a few reasons. No. 1, it owns the full stack, meaning hardware and software. The little Toast things that servers hold in their hands only work with Toast software. It has done an excellent job of building out its own AI tools. The fact that it's used in 171,000 locations right now, that's a pretty competitive advantage in an industry that has a somewhat transient workforce. If you're already trained on Toast in one restaurant, you can easily move to another restaurant, and it's a lot less friction to move jobs. There are some risk factors here to keep in mind, for sure. Memory costs, we've talked about in other segments, they're expected to be a pretty big margin headwind to Toast because they have a lot of memory needs. There's a lot of competition. Clover has more locations. Just Toast has more volume. Block’s Square is still a big part of the restaurant industry. This is still not a cheap stock. But as long as it keeps growing the top line at 20% year over year and is doing it profitably, keeps building out its ecosystem of features, I am a fan of Toast at these levels.

Lou Whiteman: I like the business better than the stock. I've never been enamored with the stock. It's just restaurants are such a tough, low-margin business. Matt mentions 171,000 locations, but from the BLS numbers, there's about over 1 million restaurant locations, so it's not a huge market share. I don't see anything in what Toast does that it might have been Forward, but I don't think there's anything that can't be copied by Clover. So many restaurants go out of business. I don't know if just getting your tools established or anchored in. I don't know if switching costs matter too much. I think this continues to be a just slugfest business, tough to gain margin, tough to gain real pricing power. Again, I like as a consumer, they've made the restaurant experience better for me. I wish them all the best, but it's just not a stock I'm interested in.

Tyler Crowe: I don't really have a horse or a dog in this fight, I guess, if you will, mixing my metaphors as always. But just throwing on the bear case cap for a second here. Matt, to your point, it is an intensely competitive space with Clover and Square. The three of them combined have hoovered up a decent amount of the space in terms of market share. Toast gains in market share up until now have garnered that 20% revenue growth or ARR growth that they have seen. The thing that I keep coming back to when I look at this is what you said was, as long as they keep that 20% revenue growth, well, that involves continuing to grow market share.

I think that the market share gains from here, where I think they're somewhere in the mid-20s percent, at least in some independent data that's been put out there, is going from that to 40% is much harder than going from 5-10% up to where it is today. There is a real possibility that revenue could slow as a result because it becomes much more of a knife fight, getting market share relative to a lot of its competitors. But it seems to be, as anyone who has either seen it or if you talk with people in the industry, they seem to really like the product, and so it has that aspect to it. Not saying that it can't do it, but it's just going to get harder from here. That's all the time we have for today. Lou, Matt, thanks for sharing thoughts. I'm going to hit disclosure, and we'll get out of here.

As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards, and it's not approved by advertisers. Advertisements are sponsored content and provide for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to producer Bart Shannon and the rest of The Motley Fool team for Lou, Matt, and myself. Thanks for listening, and we'll chat again soon.

JPMorgan Chase is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Lou Whiteman has no position in any of the stocks mentioned. Matt Frankel, CFP® has positions in Bank of America, Block, and International Business Machines. Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Block, Goldman Sachs Group, International Business Machines, JPMorgan Chase, Micron Technology, and Toast. The Motley Fool has a disclosure policy.