International Business Machines Corp. (NYSE:IBM) has yet again set a milestone in chip innovation with the production of a 7nm functional node test chip. The IT giant is working in a public-private partnership that involves New York State, Samsung, GlobalFoundaries, and equity vendors for the production of advanced computer chips. IBM announced an investment of $3 billion for the project last year and its investment has started paying off with this announcement. It is a huge milestone in the development of the next-generation of microchips, which is likely to bring down the current 10nm manufacturing standard to 7nm. The information technology company announced that it has functional chips made out of 7nm transistors.
IBM said, “7nm node has remained out of reach due to a number of fundamental technology barriers.” One of the major problems was the properties of Silicon used for the manufacturing of the chips, and this consortium got around that by replacing silicon with a silicon-germanium alloy, improving electron mobility in the chips. For the record, this is the second time International Business Machines Corp. (NYSE:IBM) has improved chip manufacturing, as the company was able to create a 9nm transistor out of carbon nanotubes in 2012. This development indicates a big success for the technology company, as it will allow IBM to manufacture powerful processors for big data analytics. What is even more appreciable is the fact that the company disposed of the majority of its semiconductor manufacturing in 2014. The technology company sold off its semiconductor unit to GlobalFoundaries and agreed to pay $1.5 billion over the next three years. Richard Doherty, President of Envisioneering, a Seaford consulting firm, said, “This puts IBM in the position of being a gentleman gambler as opposed to being a horse owner.”
The shares of International Business Machines Corp. (NYSE:IBM) are trading at $163.18, a 1.96% improvement in share price year-to-date. Smart money has a slightly bullish outlook on the stock of the company with 53 hedge fund investors putting holding $15.18 billion of the company’s shares at the end of the first quarter. While ownership declined from 58, the total value of the funds’ holdings increased from $14.50 at the end of 2014. The technology company has attracted investments from the likes of revered value investors Warren Buffett and Prem Watsa.
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We don’t just track the latest moves of funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly, outperforming the market every year and returning 135%, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Insider activity is an indicator of the insider sentiment towards the company. The insiders at International Business Machines Corp. (NYSE:IBM) have anything but a bullish sentiment on the stock, with 50 insider sales in 2015. However we should not that sales aren’t necessarily a bearish indicator, though so many certainly doesn’t indicate much bullishness among executives either.
With all of this in mind, we’re going to go over the latest smart money activity regarding International Business Machines Corp. (NYSE:IBM).
What have hedge funds been doing with International Business Machines Corp. (NYSE:IBM)?
Heading into the second quarter, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 9% from one quarter earlier. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes meaningfully.
When looking at the hedgies followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway had the most valuable position in International Business Machines Corp. (NYSE:IBM), worth close to $12.77 billion, holding 79.57 million shares, corresponding to 11.9% of its total 13F portfolio. Sitting at the number two spot is Kenneth Mario Garschina of Mason Capital Management, with a $401.3 million position of call options underlying 2.5 million shares; 6.7% of its 13F portfolio is allocated to the position. Some other hedge funds that hold long positions encompass David E. Shaw’s D E Shaw, Prem Watsa’s Fairfax Financial Holdings, and Phill Gross and Robert Atchinson’s Adage Capital Management.
Because International Business Machines Corp. (NYSE:IBM) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers who were dropping their full holdings last quarter. It’s worth mentioning that Jim Simons’ Renaissance Technologies dropped the largest investment of all the hedgies monitored by Insider Monkey, totaling about $108 million in stock, while Glenn Russell Dubin of Highbridge Capital Management was right behind this move, dumping about $66.2 million worth of shares. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by five funds last quarter.
IBM has realigned its focus towards big data analytics, cloud services, and enterprise customers. With this breakthrough in chip manufacturing on its side, and the continued backing of investing gurus like Warren Buffett and Prem Watsa, we recommend a buy on IBM.
Disclosure: None
