It might, at first, be hard to see how a change in something so subtle as a 401(k) match rate might influence share prices like it did today with IBM (NYSE:IBM), which is up fractionally in Thursday afternoon’s trading. But considering how a business attracts and retains its talent is vital to its status as an ongoing concern, and IBM may have made quite the move here.
IBM announced that it was making a pivot from its former 401(k) match plan to a “traditional defined benefit contribution.” Such a plan has some benefits to it, like a guaranteed overall rate of return, which is hard to pass up, particularly in uncertain economic times. However, it comes with a key caveat: that guaranteed rate of return may not be as high as it might have been had that cash been more aggressively invested.
But—and this might be the best point yet for IBM—it will have the first-mover advantage herein and will have it for a while. Reports note that other companies looking to make a similar move will find it difficult. Not only will anyone trying it need to have a traditional defined benefit program, but they’ll also need to have it overfunded, and there can’t be a union involved. That removes many such companies from even considering it.
From the Subtle to the Sublime
IBM is adjusting its pension, but it’s also working on a new AI application for weather prediction. IBM notes that current competitors in this field are using “AI emulators” rather than actual AI, which will be better equipped to process years of weather and climate data to produce predictions. IBM also rolled out the Quantum Eagle, a 127-qubit processor, which is the first “utility-scale” processor Japan has ever seen. Here, “utility-scale” means “the point at which quantum computers could serve as scientific tools to explore a new scale of problems.”
What is IBM’s Target Price?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on IBM stock based on three Buys and six Holds assigned in the past three months, as indicated by the graphic below. After a 10.95% rally in its share price over the past year, the average IBM price target of $149.75 per share implies 4.99% downside risk.
