The market is flooded with names that claim to be AI companies. The word “AI-powered” is enough to get the attention of the Street, but some believe those days are going to be history soon as investors become jittery about massive CapEx and ROI-related fears.
To find out where retail investors are actually putting money for the long haul, we scoured Reddit threads and discussions on the r/stockstobuytoday community and picked two stocks retail investors on Reddit said they are buying for the next five years. These are International Business Machines Corporation (NYSE:IBM) and Alphabet Inc. (NASDAQ:GOOG). In this article, we will focus on IBM.
Retail investors on Reddit say they like IBM because they believe small quantum startups won’t be able to raise enough development money or handle regulation, while IBM is already embedded in enterprise accounts with a strong reputation. They also like the stock’s valuation and dividend.
Valuation
IBM has a forward non-GAAP P/E of 19.12, which is 15.72% below the sector median of 22.69 and 5.85% above IBM’s own five-year average of 18.07. Forward GAAP P/E of 23.13 sits 21.10% under the sector and 17.03% below IBM’s five-year average of 27.88. Forward EV/EBITDA of 13.85 is 5.46% under the sector median and 5.86% above IBM’s own history.
But what is the stock’s story, and how can AI help it over the next five years?
The AI Catalysts
Software is now about 45% of IBM’s revenue and roughly 80% of that is recurring. Within software, the Data business grew 18% in the second quarter. This segment includes watsonx.data and Confluent. These products help companies find and govern data scattered across different databases and clouds. An AI agent is useless to a company unless it can reach the right data, so this business grows as AI spreads inside enterprises.
Hybrid cloud is the second AI-linked engine. Red Hat grew about 11% in the quarter. Banks, insurers, and governments will not move everything into one public cloud because of security and regulation, so they run applications across their own data centers plus AWS and Azure.
Quantum is a strong catalyst Redditors like. IBM plans to invest more than $10 billion in quantum over the next five years across R&D, capex, manufacturing, M&A, and ecosystem work. The company signed a letter of intent with the Department of Commerce to build Anderon, described as the world’s first pure-play quantum foundry.
Bear case and risks
AI is also a threat to part of IBM’s business. The mainframe moat came from legacy COBOL that almost nobody can read and developers who are retiring. AI can now read that code. Google, Anthropic, Oracle, and AWS all sell mainframe migration tools, and Bridgestone has already moved its mainframe workloads to AWS. IBM stock fell 13% on news that Claude could automate COBOL modernization.
READ NEXT: 33 Stocks That Should Double in 3 Years and Cathie Wood 2026 Portfolio: 10 Best Stocks to Buy.
Disclosure: None. Follow Insider Monkey on Google News.
