28 October 2018: IBM bets $34 billion on Red Hat
IBM agreed to buy open-source software company Red Hat for about $34 billion, paying a hefty premium in what was then one of the largest software acquisitions ever. The deal was IBM's big bet on hybrid cloud computing after years of shrinking revenue. Red Hat had built a profitable business largely by charging for support on software that anyone could download for free.
The lesson: You can build a great business around giving things away, if customers pay for reliability.
What it meant for investors
$1,000 in IBM at the start of 2018 → $1,883 today, vs $2,519 in the S&P 500.
We start the clock at the start of 2018, the year it happened. That is 1.9 times the money, but $635 less than a plain index fund made over the same years.
What IBM teaches: Buybacks cannot substitute for growth; IBM spent tens of billions shrinking its share count while revenue declined, and the stock went nowhere for years.
| Bought in | Price then | Worth today | S&P 500 would be |
|---|---|---|---|
| 2015 | $160 | $1,812 | $3,301 |
| 2018 | $154 | $1,883 | $2,519 |
| 2020 | $135 | $2,148 | $2,092 |
green = beat the S&P 500 · red = lost money
What if you bought IBM? Every starting year and the full story →
More IBM history
- 7 April 1964: IBM bets the company on System/360
- 11 May 1997: Deep Blue beats Kasparov
- 12 August 1981: IBM launches the personal computer
- 7 December 2004: IBM sells its PC business to Lenovo
Could you have called it at the time? The wheel picks the year, you pick the position, ten seconds a pick.
Play Sixty-40