Stan Druckenmiller, who has one of the best track records in the hedge-fund industry over the past three decades, said he’s betting against shares of International Business Machines Corp. (IBM) while wagering on younger technology companies such as Amazon.com Inc. (AMZN)
“IBM is old technology being replaced by cloud technology,” Druckenmiller, 60, said in an interview with Bloomberg TV’s Stephanie Ruhle at the Robin Hood Investors Conference in New York yesterday. “It’s one of the more higher-probability shorts I have seen in years.”
Sales at the 102-year-old IBM have dropped for six straight quarters as the growth of services such as cloud computing have failed to make up for slowing demand for older businesses like hardware. The company is selling less-profitable divisions and is devoting cash to stock repurchases to help reach its forecast for growth in earnings per share.
Druckenmiller said he’s betting on Amazon, and praised Chief Executive Officer Jeff Bezos, who founded the online retailer in 1994. Amazon’s Web Services division, whose server farms generate the processing power the retailer sells to heavy corporate data users on the cheap, “is killing it,” he said.
Bezos is a “serial monopolist,” Druckenmiller said. IBM should be investing in its business and taking on the “challenge of the Amazons of the world” instead of doing share buybacks, according to Druckenmiller.
IBM fell 1.5 percent to close at $181.30 yesterday in New York. James Sciales, a spokesman for Armonk, New York-based IBM, didn’t respond to a phone call and e-mail requesting comment on Druckenmiller’s wager.
IBM lost 5.4 percent this year, compared with a 27 percent gain for the Standard & Poor’s 500 Index and a 48 percent increase for Amazon. If IBM ends the year in negative territory, it will be its first annual decline since 2008.
IBM said last month that it added $15 billion to its buyback plan, part of CEO Ginni Rometty’s plan to achieve $20 in adjusted earnings a share by 2015, up from $15.25 last year. The hardware unit, which makes servers and other devices for business users, reported a loss last quarter. Rometty took over as CEO in January 2012.
IBM’s backers include billionaire Warren Buffett, who has said long-term investors should root for IBM shares to languish in the short term, giving it a lower price to repurchase stock.
Druckenmiller said that while he has great respect for Buffett, he isn’t known for tech investments.
“I don’t think technology is his area of expertise,” Druckenmiller said. “He has often said that.”
Druckenmiller described Google Inc. as the most “innovative company on the planet,” citing the company’s web-enabled eyeglasses and self-driving cars. He said investors who want to bet on innovation should buy shares of Google and those who want to bet against innovation should buy IBM shares.
Druckenmiller, a former chief strategist for billionaire George Soros, shut his hedge-fund firm three years ago and now manages his own wealth through his Duquesne Family Office LLC. From 1986 through 2010, he produced average annual returns of 30 percent at his hedge fund Duquesne Capital Management LLC.
Druckenmiller said that while his returns over the last 10 years were “very subpar,” they are superior to the returns currently in the market. Hedge funds have returned an average of 6.9 percent this year through October, according to data compiled by Bloomberg.
Druckenmiller said he doesn’t share hedge-fund manager David Tepper’s view that the stock market offers a “no-brainer opportunity” for investors. Still, Druckenmiller said he doesn’t see anything to change the rising trend of the market.
He said in September that he had only a few small trades on as he waited to see who might replace Federal Reserve Chairman Ben S. Bernanke when he steps down at the end of January. Vice Chairman Janet Yellen has since been nominated to the post and is awaiting confirmation by the Senate.
In May, Druckenmiller said investors should bet against the Australian dollar. The currency has since fallen about 9.8 percent against the U.S. dollar.
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