One of the themes in markets right now is that the ‘old economy’ stocks are rising while the AI stocks are sliding. It’s something of a mean reversion trade but could also highlight some positive cyclical signs in things like manufacturing and transport.
But here is an ‘old economy’ company that I didn’t not expect to be trading cheaper than a company that’s synonymous with computing.
As of this morning, IBM’s Forward consenus P/E ratio (~24.08x) has officially crossed above Microsoft’s (~22.87x).
For the last decade, the trade was simple: buy growth, buy cloud, buy MSFT. IBM was the “dead money” dividend stock your grandfather owned.
But the narrative in 2026 has flipped violently.
Microsoft (MSFT) is suddednly in the penalty box. The Melius downgrade to “Hold” this morning is just the cherry on top of a rough few months. Investors are officially exhausted by the “Capex Black Hole.” Redmond dropped $37.5B in capital expenditures last quarter alone, and the street is finally asking the hard question: “Where is the ROI?”. The company hasn’t yet provided a 2026 capex guide but that’s a $150B run rate but they did say it would moderate soon. Azure growth slowing to 37% isn’t helping matters when you’re pricing in perfection.
IBM, on the other hand, is having a renaissance.
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The z17 Mainframe cycle is printing money.
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Consulting revenue is booming because enterprises need someone to actually implement all this AI, not just buy the chips.
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They aren’t spending +$100B a year on data centers.
It’s the classic “Pick and Shovel” vs. “Gold Miner” trade, but in reverse. IBM is the consultant selling the shovels, and Microsoft is the miner digging a very expensive hole.
It’s not just the forward-looking estimates. The Trailing P/E (TTM) valuations have converged and flipped as well.
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IBM Trailing P/E: ~25.1x
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Microsoft Trailing P/E: ~24.6x
Microsoft hasn’t traded at a 24-handle since the 2022 lows. It’s officially “value” territory for a company growing double digits.
The momentum is clearly with the old guard right now. The market is rewarding cash flow today over AI dreams of tomorrow.
But let’s be real—MSFT at 22x forward earnings? For a company with a monopoly on the corporate desktop and the second-largest cloud?
This chart screams “overshoot.” IBM has had a great run (up ~115% LTM), but paying a higher multiple for IBM than Microsoft feels like a signal that the “Safety Trade” has gone too far.
Looking at the bigger picture, the whole big-tech selloff is starting to look like a microcosm of Meta before the Metaverse implosion. The moment Zuckerberg pivoted away from a huge spend on that disaster, the stock took off. Now I don’t think AI is any kind of metaverse disaster but the market only has so much appetite for capex until it sees a real return.
This article was written by Adam Button at investinglive.com.