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Market Savvy | CONSUMER SAVVY / A Briefing for Investors

Market Casts IBM in Role of Hot Net Stock

May 14, 1999|Bloomberg News, Times Staff

All hail the hottest new Internet stock: IBM!

That sums up Thursday's market action, as IBM shares rocketed $20.50 to a record $246--adding an astounding $19 billion to the company's market value--after Chairman Louis Gerstner implied that IBM was undervalued relative to the amount of Net-related business it's already doing.

Addressing analysts Wednesday, Gerstner said Internet-based services--from programs that set up Web sites to contracts that keep computers running--generate about $20 billion in annual sales for IBM, or nearly 25% of its total.

Moreover, Gerstner said he expects demand to pick up next year as more companies hook up workers, order supplies and make documents available via the global computer network.

Why Wall Street is just waking up to this is anyone's guess. But in one trading day, IBM added nearly as much market value as its annual Net-related sales.

Thursday's gain ranked as one of the largest, if not the largest, one-day jump in market value for any U.S. company in history.

Gerstner "showed tangible evidence that the Internet is benefiting IBM," said Steve Milunovich, an analyst at Merrill Lynch, who rates the stock a "buy."

As IBM's shares soar, the stocks that had been the premier Net issues earlier this year--names such as America Online, Yahoo and Microsoft--suddenly are sinking. AOL fell $5.81 to close at $132.63 on Thursday, Yahoo lost $9.56 to $160.38 and Microsoft fell $1.38 to $79.13.

That suggests some institutional money managers are shifting out of those stocks and into IBM.

IBM's market-value increase Thursday was almost as much as the entire current market value of Net retailer Amazon.com.

IBM may be better positioned to gain as companies conduct business via the Internet because it sells all of the pieces needed to set up a Net presence, analysts said.

Gerstner also said IBM's customers haven't delayed purchases to focus on the year 2000 problem, which may cause some computers to read 2000 as 1900.

"I didn't hear a cloud in the sky," said SoundView Technology Group analyst Gary Helmig of Gerstner's speech. Helmig raised his 12-month estimate for IBM's stock price to $260 from $225.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

New Net Stock Leader?

IBM shares have rocketed in recent weeks on optimism about the company's Internet-related businesses. Meanwhile, such once-hot Net stocks as Microsoft, America Online and Yahoo have cooled. Weekly closes and latest:

Thursday closes:

IBM: $246.00

Yahoo: $160.38

Microsoft: $79.13

Source: Bridge

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