IBM Shows Bear Trap: Wild Reversal After Share Price Plunge, Is the $200 Periodic Bottom Beyond Doubt?

TradingKey - IBM found buying support near $200, but whether it can strengthen further depends on the upcoming conference call.

During regular trading hours on July 16, Eastern Time, IBM ( IBM) shares weakened further to around $204, falling over 3% from the previous trading day's close of $211, while hitting a new low since November 2024. However, unexpectedly, IBM subsequently rebounded and strengthened, reversing its decline to end 3.72% higher at $219.05.

The sudden brake in IBM's stock decline was not actually driven by any major positive news; rather, it was more likely due to hitting the technical defense line of $200. This level was a barrier formed between June and September 2024, and its breakout paved the way for an upward trend of nearly three years. Currently, this level will transition from resistance to support.

IBM Stock Chart, Source: TradingView

From a valuation perspective, IBM's stock falling near $200 means its P/E ratio has pulled back to 19x from nearly 30x previously, offering great value. Furthermore, its dividend yield has risen back to 3.08%, returning to a safer level overall, which appeals to institutional capital seeking defensive AI assets.

In addition, IBM's fundamentals have not hit an extremely terrible bottom. IBM's second-quarter revenue was $17.2 billion, below the market expectation of $17.9 billion, and grew only 1% year-over-year. However, this does not mean the software business is completely dead. Analyst Ujjwal Maheshwari believes it was merely crowded out by the hardware supply chain, ultimately causing several large contracts to miss closing in Q2 as scheduled, which were deferred to the second half of the year.

Although IBM's mainframe business and short-term consulting are under pressure due to budget crowding-out, IBM's software engine—which truly represents the future—has not stalled. For instance, Red Hat's revenue growth accelerated against the trend to 11%, and the acquired HashiCorp and Confluent delivered stellar performances. More notably, IBM simultaneously revealed its technological ace in this earnings report—announcing the launch of the world's first 0.7-nanometer (Sub-1nm) chip technology!

Although the selling pressure on IBM's stock has been largely released and has found some support, it does not imply a rapid rally is imminent. The trend for the second half of the year will mainly depend on the conference call next Wednesday (July 22). At that time, IBM will provide a detailed outlook for the second half of the year. Crucially, the key will be whether CEO Arvind Krishna can confirm that the Q2-deferred contracts were successfully signed in July, as well as offer optimistic guidance on the timeline for the brand-new 0.7nm chip and the next-generation z18 mainframe.