Dear Reader
I recently visited Mar-a-Lago...
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Senior Investment Analyst, InvestorPlace
IBM's Steep Drop on AI Fears May Be an Overreaction
Reported by Jeffrey Neal Johnson. Published: 2/25/2026.
Key Points
- International Business Machines consistently generates exceptional free cash flow to comfortably support ongoing corporate transformation and reliable shareholder dividend payouts.
- Strategic acquisitions strongly enhance hybrid cloud architecture and provide a robust foundation for future enterprise technology expansion.
- Proprietary artificial intelligence innovations allow clients to safely modernize their legacy code directly on highly secure mainframe platforms.
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A sudden collision between cutting-edge artificial intelligence (AI) startups and legacy enterprise infrastructure erased billions in shareholder value. On Feb. 23, 2026, International Business Machines (NYSE: IBM) suffered its steepest single-day decline since 2000. Shares plunged 13.2%, wiping out roughly $30 billion in market capitalization in a matter of hours.
The catalyst was a single product announcement from AI startup Anthropic. The company unveiled additional features for Claude Code, including tools that claim to automate the complete modernization of COBOL, a decades-old programming language that still quietly powers large parts of the global financial system. Investors feared that automated code translation would instantly erode the lucrative infrastructure and consulting revenues tied to maintaining these systems. That panic triggered a sector-wide contagion and dragged down several major IT service providers.
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Still, the dramatic sell-off has largely faded. The stock rebounded the following day, closing up 2.68% at $229.34 on exceptionally heavy trading of more than 13.3 million shares. Major Wall Street analysts, including teams at Wedbush and Evercore ISI, quickly defended the stock, calling the move an unwarranted overreaction and a buying opportunity for investors who understand enterprise technology realities.
Why AI Cannot Replace a Mainframe
Enterprise clients cannot simply abandon their mainframes because a new AI tool can translate legacy code into a modern language. Translating code syntax is not the same as modernizing a deeply integrated hardware-software architecture.
The structural moat around IBM's Z-series mainframes remains intact. A basic software-as-a-service tool hosted on a public server cannot reproduce the hardware-level guarantees required by the world's largest institutions. Today's mainframes are purpose-built from the silicon up to deliver unmatched transactional resilience:
- Massive Scale: A single system can process 25 billion encrypted transactions per day.
- AI Throughput: The platform delivers roughly 450 billion AI inferences per day with one-millisecond response times.
- Extreme Reliability: The hardware operates with up to eight nines of availability.
- Future-Proof Security: The system includes quantum-safe encryption to guard against emerging cyber threats.
Today, more than 90% of the world's credit card transactions pass through these specialized systems. Regulated entities — global banks, insurance firms and governments — are unlikely to shift their most sensitive operational data to third-party public clouds because of data sovereignty, compliance and security risks.
In fact, AI can strengthen that protective moat rather than erode it. IBM already offers a proprietary generative AI tool, watsonx Code Assistant for Z, which allows clients to refactor and modernize legacy code directly on the platform while maintaining enterprise-grade security.
Pristine Financials Hidden in the Noise
The recent market panic obscured the company's underlying financial performance. Before the AI-induced sell-off, fourth-quarter 2025 earnings showed broad-based growth that surpassed Wall Street expectations:
- Earnings Beat: Adjusted earnings per share (EPS) were $4.52, above consensus of $4.33.
- Revenue Surge: Total fourth-quarter revenue was $19.7 billion, a 12% year-over-year increase.
- Segment Strength: Growth was driven by a 14% increase in Software revenue and a 21% rise in Infrastructure revenue.
- Record Cash: Free cash flow for the full year 2025 reached a record $14.7 billion, up $2 billion from the prior year.
The business is growing and generating significant cash independent of the recent market noise. The internal generative AI book of business now tops $12.5 billion, including more than $10.5 billion in consulting and about $2 billion in software — evidence that IBM is successfully monetizing AI within highly regulated enterprises.
Management is also deploying capital to strengthen the higher-margin software portfolio. Strategic acquisitions of HashiCorp ($6.4 billion) and Confluent (NASDAQ: CFLT) ($11 billion) enhance the company's hybrid cloud capabilities. To further bolster its AI offering, the company recently announced a major collaboration with Deepgram to integrate advanced voice AI into its enterprise solutions.
A 3% Dividend Yield Built on Rock-Solid Cash
The sharp drop in IBM’s share price compressed the stock's valuation. The trailing price-to-earnings ratio (P/E) has fallen to about 20.5, offering a more reasonable entry point than earlier in the year. Because dividend yields move inversely to price, the pullback has pushed the dividend yield to roughly 2.93%.
Management has a 30-year track record of consecutive annual dividend increases. That payout is well supported by the company's sizable free cash flow. Looking ahead, 2026 guidance calls for more than 5% constant-currency revenue growth and an additional $1 billion in free cash flow, underscoring management's confidence in the ongoing business transformation.
While the broader market fixates on short-term disruption narratives and flashy startup announcements, the underlying metrics tell a different story. The financials remain strong, and the core infrastructure is far more defensible than simple code translation implies. For patient investors, the recent volatility has created an attractive opportunity to buy a profitable, cash-generating, deeply entrenched technology leader at a meaningful discount.
Booking Holdings Split: The Catalyst Wall Street Didn't See Coming
Reported by Chris Markoch. Published: 2/19/2026.
Key Points
- Booking Holdings announced a 25-for-1 stock split following double-digit revenue and EPS growth in Q4 2025.
- Investors remain concerned that Alphabet’s AI-powered travel tools could bypass traditional booking platforms.
- Despite the sell-off, analysts and institutions still see meaningful upside supported by strong bookings growth and valuation discounts.
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Let's not bury the lead. Booking Holdings Inc. (NASDAQ: BKNG) announced a 25-for-1 stock split effective April 2. Stock splits don't change a company's intrinsic value, but with BKNG trading for more than $3,900 a share, the split removes a major price barrier for retail investors and could spur stronger retail interest.
The stock split announcement came with Booking's Q4 2025 earnings report. The company beat on both the top and bottom lines, reporting earnings per share (EPS) of $48.80 and revenue of $6.35 billion. EPS rose 17% year over year and revenue increased 16%. Room nights grew 9% year over year, and gross bookings climbed 16% to $43 billion.
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Booking also provided constructive guidance for the current quarter, projecting revenue growth of 14% to 16% and adjusted EBITDA growth of 10% to 14%. On a constant-currency basis, it expects revenue growth of 7% to 9%, which is below the 11% reported in the quarter just ended.
A Strong Quarter Isn't Enough to Shake AI Fears
Despite the positive headlines, BKNG stock fell 8.69% at the open on Feb. 19, the day after the report, reversing what had looked like a recovery from a bearish trend that began in July 2025. The stock is down 26.5% year to date and is trading near a 52-week low.
Part of the pullback reflects concerns about the impact of artificial intelligence (AI) on Booking's business. Some analysts warn that Booking could face AI-driven disintermediation — meaning large tech firms, such as Alphabet Inc. (NASDAQ: GOOGL), which are advancing agentic AI, might develop products that allow users to book travel without going through traditional intermediaries like Booking.
Alphabet rolled out a major update to its AI Search/Travel Mode in late 2025 that enables AI agents to book trips within the Google ecosystem. A related worry is rising marketing spend: Booking has been increasing spending on sponsored links to preserve online visibility.
Booking's Real Moat: Data, Loyalty, and Friction-Free Booking
The counterargument is that Booking can also deploy AI to strengthen its existing business. The company has decades of consumer-behavior data, electronic connectivity with millions of accommodations, and a broad payments network — capabilities that support a seamless booking experience many travelers prefer.
New offerings from Google or others would need to give consumers a clear reason to switch. If the experience is essentially the same on a different platform, consumers are unlikely to change unless the alternative consistently delivers a lower price, which is uncertain.
Booking has built significant goodwill, and this quarter's results suggest it is leveraging that advantage effectively.
Wall Street Lowers Targets, But Hasn't Given Up on BKNG
Analyst forecasts on MarketBeat show that Wall Street has been quick to revise estimates for BKNG. Many price targets have been lowered and now sit below the Street's consensus—around $6,000.
That consensus price remains more than 50% above the stock's level as of this writing, leaving considerable upside potential in the near term.
Another encouraging sign: institutional ownership, which had been net bearish by dollar volume for much of last year, showed signs of reversing in the most recent quarter. Buying volume of roughly $28 billion outpaced selling volume by nearly 3-to-1.
The solid results, together with the stock-split announcement, could prompt additional buying in 2026 — and that brings us back to the split itself.
A Long-Overdue Stock Split—But Timing Is Everything
Booking has long been one of the priciest stocks on the market. This isn't primarily about valuation: at roughly 20x next year's earnings, BKNG trades at a modest discount to the S&P 500 and is not expensive on a historical basis.
It's about the per-share price. Even after this year's decline of more than 25%, a >$3,900 share price is a psychological and practical barrier for many investors, especially those reluctant to hold fractional shares.
Many analysts had expected a split for some time. However, announcing it during a period of stock weakness could dampen any immediate positive impact; other companies, such as Walmart Inc. (NYSE: WMT), have timed splits when their shares were nearer 52-week highs.
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