Technology stock charts of the week: IBM and ServiceNow
Technology stocks have come under pressure lately as the Nasdaq 100 index has dropped for five straight days, reaching its lowest point since June 24th. It has retreated by 5.57% from its highest level this year.
This will be an important week as a few companies are expected to publish their results. Alphabet will be the biggest tech company to report followed by Tesla and Visa. In most cases, Google and Tesla’s earnings tend to have a major impact on the tech sector.
This article looks at International Business Machines (IBM) and Sevicenow (NOW), which will release their numbers on Wednesday.
IBM earnings preview
IBM stock price has risen by 12% this week, underperforming other tech companies like Google, Nvidia, and Microsoft. It has also lagged behind the Nasdaq 100 index, which has risen by over 18% this year.
IBM’s performance is mostly because the company seems to be lagging other big tech companies like Amazon, Microsoft, and Google in the artificial intelligence (AI) industry. It is also not gaining substantial market share in the cloud computing sector, where it trails companies like AWS (Amazon), Azure (Amazon), Google Cloud, Alibaba Cloud, and Salesforce.
This performance was seen in its first-quarter results when its revenue rose by just 3% to $14.5 billion. Its software business grew by 6% to $5.9 billion while its consulting business generated $5.2 billion in revenue. Infrastructure grew by just 0.2% to $3.1 billion.
Analysts believe that IBM’s second-quarter revenue will come in at $15.6 billion, a 0.3% increase from the same period in 2023. For the year, they expect that its revenue will be $63 billion while its free cash flow will be $12 billion.
Amid this slow growth, there are concerns about IBM’s valuation. The company has a trailing price-to-earnings ratio of 20.8 and a forward one of 21.8. While these ratios are in line with the S&P 500 index, the latter is seeing robust growth. The blended earnings growth for the S&P 500 index sits at 9.8%.
IBM stock price forecast
The daily chart shows that the IBM share price has risen from $114 in March last year to over $180 today. It has dropped slightly below the first support of the Andrew’s pitchfork tool. Also, the stock remains above the 23.6% retracement point and the 50-day moving average.
Therefore, the key IBM stock price levels to watch will be at the 23.6% retracement at $177 and last week’s high of $190.
ServiceNow earnings ahead
ServiceNow stock price has also underperformed the market this year as it jumped by just 6% while the Nasdaq 100 has risen by double-digits.
For starters, ServiceNow is a major IT company that provides multiple services like IT service management, operations management, and helpdesk solutions. Some of its top companies are firms like NHL, Saudi Aramco, Siemens, Nascar, and BT Group.
ServiceNow has been one of the fastest-growing companies in the industry as its revenue rose from $3.4 billion in 2019 to over $8.9 billion in 2023. It has also become a highly-profitable company as its net profit rose from $627 million to $1.7 billion.
ServiceNow’s revenue came in at $2.6 billion in the first quarter, helped by its subscriptions, which rose by 25% to $2.5 billion. This growth happened as the company continued to improve and market its Now Assist product, which is a new AI tool.
The average estimate among 29 analysts is that its revenue rose to $2.6 billion in the second quarter. Its guidance is expected to be $2.75 billion (Q3) and $10.89 billion for the year. Analysts have an average ServiceNow stock estimate of $853, higher than the current $751.
ServiceNow is one of the most overvalued companies in the tech sector. It has a trailing P/E ratio of 80 and a forward multiple of 124. These numbers are higher than those of Nvidia, a company that is having a 200% quarterly growth rate. This explains why Guggenheim analysts slashed the stock’s outlook.
ServiceNow stock price analysis
Turning to the daily chart, we see that the NOW share price peaked at $815 earlier this year and has retreated to $750. It has formed a slanted double-top pattern whose neckline was $637. In most cases, a double-top is one of the most bearish signs in the market.
ServiceNow shares are now consolidating at the 50-day and 100-day Exponential Moving Averages (EMA). They also remain above the ascending trendline that connects the lowest swings since January 2023.
Therefore, as with IBM, the stock will likely show some volatility this week. While its hard to predict, I suspect that it will rebound to about $770 because it has formed an inverse head and shoulders pattern. The alternative scenario is where it drops to the psychological level at $720.
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