IBM Reddit Mentions | ChartExchange

The two types of investments with the greatest contrasts are technology and oil. If oil prices rise too sharply, there is less money to be made with technology. If oil prices fall, then technology is the place for investors to be, because cheap energy makes more things possible. Over the past 85 years, this has been one of the strongest trends in the financial markets.
After the Second World War, technology set the tone, culminating in the moon landing in 1969. IBM and AT&T played the leading role during this period. The weighting of these two stocks in the S&P 500 was very high, at over 10%. Nobody wanted to be in commodities, and the sector was starved of capital. As a result, whereas there were on average 2,686 active drilling rigs in the United States in 1955, this had fallen to 976 in 1971.
When investment in commodities declines and demand rises, it is only a matter of time before that demand grows faster than supply and commodity prices rise. The 1973 oil crisis would have been considerably less severe had investment in the oil sector not been scaled back so far. When there is money to be made with commodities, investors want commodities rather than stocks, and the result is that money flows into the oil sector.
The additional investment in oil after the crisis was once again visible in the number of active drilling rigs in the United States; in 1981, this reached its highest annual average at 3,970. Then there was an oversupply of oil, and the whole cycle began again. Near the peak of the internet bubble in 1999, the number of active drilling rigs in the United States was only 475. The 2000s, much like the 1970s, were then fantastic for oil: the price rose from $10 to nearly $150 in 2008.
And now we are in the midst of the third cycle, in which the theme is AI. It is easy to claim that nobody could have known that in 2026 a prolonged war between Iran and the United States would break out, but the fact is that after 2014, the capital investments of oil companies fell by tens of billions per year.
Then we look again at the active drilling rigs: in 2014 an average of 1,861, and now 563. The current number can be compared with that of 2014, but not with 1981. Back then, drilling was done straight down, and that was it. Now the parties involved drill not only vertically but also horizontally – over many kilometres in length – which means they can make do with fewer drilling rigs.
We are now probably once again at the tipping point of the cycle. Technology is attracting enormous amounts of capital; SpaceX, for instance, has just made the largest IPO in history. Two more mega-IPOs are likely on the way, with OpenAI and Anthropic. The American company with the highest total profit (Alphabet) is going to issue $80 billion worth of additional shares, and SK Hynix is coming to the Nasdaq to raise up to $29.4 billion.
Capital is flowing into the technology sector, and the oil industry is being hollowed out. The result is that the rental rates for oil drilling ships are going through the roof. In 2022, it cost a quarter of a million dollars to use such a ship for a day; the day before the war in Iran, it was $412,000. A small group of investors recognises this, and it has caused a recent rally in the sector. In technology, on the other hand, the AI frenzy has led to sharply elevated prices, with companies such as ASML being priced almost for perfection.
Turning Point
Why this rally? The oil majors and the rest of the world have realised that we will face oil shortages in the coming years. Much of the oil on land has already been extracted, and we now have to go out to sea. Over the next three years, oil consumption is set to grow again by 3–4 million barrels per day. The existing fields are losing 10–12 million barrels per day. So within three years there will be a gap of around 13 to 16 million barrels per day. The drillers' earnings calls are saying: tens of billions in additional capex at sea. The reason it is so attractive is simply that there is a bottleneck. Suppose Exxon wants to drill at sea. They cannot do it themselves; they need Valaris or Transocean for that. They need those ships from Valaris or Transocean. In January 2022, those ships still cost $260,000 per day. In 2023 it was $288,000 per day, in 2024 $333,000, in January 2025 $389,000 per day, and now they are already at $411,000 per day. The ships are therefore badly needed, but no new ships are being built. January 2014 was the last year in which many large oil majors invested heavily in capex. After that, it became less attractive due to government regulations and so on. The idea was that oil consumption would peak around 2020. So they did not invest all those billions. In 2020, shipbuilders also thought: we will never need those ships again. Those shipyards in China and South Korea have all been converted (sometimes into ordinary container ships), because at that time we did want to receive lots of parcels from Temu and Alibaba. For that reason, you can also see, for example, that up to and including 2029 there are only orders for container ships at the shipyards, and no Very Large Crude Carriers are being built. Other shipyards opted for LNG ships. Here too, an enormous scarcity of the right ships is now emerging.
Trump
At the end of June, the prediction platform Polymarket estimated the probability that traffic through the Strait of Hormuz would be back to normal by 31 December at 90%. This has now dropped to 56%. According to Polymarket, normalising traffic through the strait is nevertheless still a less difficult problem than a nuclear deal between the United States and Iran: the chance of one being reached this year stands at 31%.
The United States has shot its bolt. In recent months, a quantity of Tomahawk missiles has been fired in Iran roughly equal to the amount the United States had purchased in the preceding ten years. The price of a return to all-out war is therefore high for the United States, because its ammunition stockpile would then fall even further.
The fact that Iran is increasingly gaining the upper hand is evidenced by what the United States is offering in the negotiations. President Trump is talking about releasing tens of billions in frozen assets, and much more in support; in 2016, Obama offered $1 billion. And Israel is also an important party in the conflict. This makes it not only unpredictable, but also likely that the chaos in the Middle East will last a long time.
Meanwhile, the prices of oil stocks are still priced as if a deal could come at any moment and everything would go back to the way it was before the outbreak of the war between the United States and Iran on 27 February.
Strategic Reserves
The strategic reserves of the United States hold 714 million barrels. At present, there are still 311 million barrels in them. You can go down to 250 million (there is a legal minimum) – effectively a kind of military threshold that one really is not allowed to go below. So at the moment, we are still around 60 million away from that. Given the elections on 3 November, Trump will probably nibble away at this somewhat anyway. He wants to be re-elected and has promised low fuel prices. He will ask to be allowed to use part of the strategic reserve, and he is likely to get it. That would then take you below that threshold. Can you go much further from there? The absolute minimum is 70 million barrels. Those must remain in there no matter what, because otherwise you can no longer bring the stored oil back up, as the pressure becomes too low. Incidentally, we would be making history with this, because it has never happened before.
So the scenario in which the minimum reserve is drawn down is quite plausible. But what then? Most likely, an agreement with Iran would then follow quickly. That is the most favourable scenario, but there is also a scenario in which Iran pulls a stunt. In that latter case, you are through your reserves and those oil prices really shoot up threefold to fourfold.
Even with an agreement, it will take years before global oil reserves are replenished again. Historically, we have never drawn down oil reserves so hard and so fast. It is uncharted territory. The price is currently only $80; it has already reached $150 once, in 2008 (well, just short of it, actually), but adjusted for inflation that latter figure could easily become $200+ in today's terms. So \[drawing down\] 1 million barrels from the strategic reserves means you still have quite a way to go before we hit the level of $150 (roughly three to four months or so). I do expect that around September a panic over this will finally start to emerge.
Incidentally, roughly the same thing is happening in China, but they do not publish figures. They too, however, have reserves that are partly above ground and partly below ground. The above-ground reserves are monitored by satellite. They have 1 billion above ground and roughly the same amount (estimated) below ground. What they are going to do is also unclear, but at the moment they are drawing down their reserves just as much as the US.
I do not think Iran will simply agree, while Trump nevertheless has to do something about Iran, because that war has already cost 37 billion. So this is going to take a while yet, and we are therefore probably heading for a genuinely higher oil price.
Transocean & Valaris
Transocean is the market leader in ultra-deepwater and harsh-environment drilling, the technically most complex segments, where new oil fields are increasingly to be found. Because these rigs have the highest technical barriers and are extremely scarce worldwide, it is precisely here that rates rise quickly as soon as demand picks up. As a result, Transocean has direct leverage on higher oil prices, although the relative acceleration is somewhat smaller than at Valaris, where far more ships are repriced in the short term.
If you wanted to rent a ship from Valaris or Transocean to drill at a depth of more than 7,500 feet, you paid on average $400,000–425,000 per day. By comparison: in 2022 the average was still $279,000 per day. The oil majors want to drill more offshore, because global oil demand will rise by roughly 3 to 4 million barrels per day over the next three years, while existing fields will lose 10 to 12 million barrels per day in production over that same period. This means that somewhere between 13 and 16 million barrels per day of new production will have to be found in a short space of time. The most easily extractable oil on land has largely already been discovered. That is why attention is shifting to extracting oil at sea.
At the drillers, a higher day rate then feeds through very forcefully into free cash flow. Valaris is a good example of this. At a day rate of $400,000, the company arrives at approximately $290 million in free cash flow per year. If the day rate goes to $500,000, that rises to $1.2 billion. After a 100% run in its share price since October, Valaris has a market capitalisation of $6.4 billion. That cash flow ultimately belongs to the shareholder. If you put those side by side, you arrive at a potential free cash flow yield of 19%. That is enormous. And it immediately explains why the 100% rise makes the stock less risky than it appears at first glance.
That those day rates can ultimately head towards $500,000 is highly plausible. At the moment, in fact, there is not a single drillship under construction. A new ship costs approximately $1 billion and takes four to five years to build. A few quarters ago, Valaris said that it only becomes worthwhile to build new ships at prices of around $800,000 per day; that was the previous price record, adjusted for inflation. We are still a long way from that, so $500,000 must certainly be achievable given the fact that we have to go out to sea in order to keep meeting the demand for oil; $600,000 is probably also realistic within a not-too-crazy timeframe.
Transocean therefore wants to take over Valaris. What is remarkable is that after the announcement of this, Valaris rose by 34.3% and Transocean by 6%. Normally you do not see the acquiring party being rewarded on the stock market, and that shows that investors believe the new combination is going to be rock-solid.
The combination will gain a fleet of 73 high-quality drilling rigs, a broader geographical spread and a larger customer base. This should lead not only to better service provision, but also to greater economies of scale and at least $200 million in cost savings. At the same time, the financial position improves. More room is created to reduce debt more quickly, the cost of capital comes down, and free cash flow for shareholders increases.
The flip side of this story is that the drillers are precisely the most risky investments within the offshore chain. Their revenues are entirely dependent on day rates that move strongly in tandem with the investment cycle of the oil majors. As soon as the oil price falls or major projects are postponed, rates drop back and ships often sit unused at the quay. Because a modern fleet represents billions and is largely financed with debt, this can quickly lead to pressure on the balance sheet. That explains why the share prices of Valaris and Transocean are generally far more volatile than those of engineers or service companies such as Subsea 7, TechnipFMC and Weatherford. Anyone investing in drillers is therefore buying the greatest leverage on an offshore upturn, but also the highest risk.