What went wrong at IBM

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Some things are more likely than others. The daily solar system rhythm — morning, evening, night — will almost certainly continue. So will the rhythm of life itself — birth…life…death.

We saw that wars have rhythms too — they have beginnings and endings. But in between…when you start a war, you open the gates of Hell. Who knows what will come out?

But today, we sway to the rhythms of the investment world – and pet the Hellcats that dance in its back alleys.

Look at IBM…such a great company. My Investing News:

Picture a retiree who accumulated IBM shares over 30 years and treated them as the quiet, dependable corner of a taxable portfolio. The reasoning seemed solid: IBM is a Dividend Aristocrat, raised its quarterly payout for a 31st consecutive year in April 2026, and has paid uninterrupted quarterly dividends since 1916. Yet the reliability of the payout did not make the stock price stable. IBM shares plunged 25.2% on July 14 after a rare warning about preliminary second-quarter results. For retirees, the lesson is not that IBM suddenly became worthless. It is that even a celebrated blue chip can become a dangerous retirement anchor when one company occupies too much of the plan.

What went wrong at IBM? Forbes:

The historic decline followed a letter from Krishna to IBM investors on Tuesday, in which Krishna said about the company’s “disappointing” second-quarter performance: “What played out was worse than our expectations. We did not adapt and move quickly enough.”

And ‘poof,’ there went nearly $70 billion.

That, of course, is part of the rhythm. Now you see value…and now you don’t.

The same disappearing value story is happening throughout the tech sector. What matters, at the end of the day, is cash. Either you have it or you don’t. Google, for example, is making more of it than any company in history — $112 billion in the last quarter. But the stock is going down.

Why?

Because its cash is vanishing. The latest company report showed free cash flow negative by $6 billion. Where did it go? It was ‘invested’ in AI infrastructure.

Tesla, same story. The stock fell 15% after the company announced a loss of $1.1 billion in cash. There, too, the money (earned from selling automobiles) was spent on AI infrastructure.

When the cash goes out the door, investors dive out the windows. Charlie Bilello makes this comparison:

Apple has generated $129 billion in free cash flow over the past year while Oracle has burned $24 billion.

Their stocks have followed the fundamentals: Apple is up 56% over the past year, trading at an all-time high. Oracle is down 52% over the past year, trading at a multi-year low.

Investors are starting to draw a line on AI spending.

Apple’s discipline is being rewarded. Oracle’s overspending is being punished.

SpaceX is in a class by itself. But it still follows the well-trod path — up…and then down. And it connects some dots for us. Part of the reason for Google’s stellar Q2 earnings comes from reporting a $99 billion-markup in the value of its AI investments, especially Anthropic and SpaceX. Anthropic remains a private company.

But since its high on June 16th, SpaceX’s value has been cut in half — that’s $1.5 trillion, more or less, gone ‘poof.’ Some of that loss will show up on Google’s next quarterly report. The company will have to take a portion of its capital spending as ‘depreciation,’ and recognize the decline of its investment.

Later this year, on December 9th, most of the ‘lock ups’ will be released. Then, a crescendo of selling — from the clerks and cleaners as well as the honchos — should hit SpaceX like an asteroid.

Look out.

Editor’s note: Find more of Bill’s writing at Bonner Private Research.

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