KD: AI Bearish Signal - Time to Consider Put Options?

Kyndryl is a leading IT infrastructure services provider, offering advisory, implementation, and managed services. The company designs, builds, manages, and modernizes complex information systems, focusing on helping enterprises navigate technological changes. Its services span cloud, core enterprise and 'zCloud' services, applications, data and AI, digital workplace, security and resiliency, and network and edge services. Kyndryl serves thousands of customers in over 60 countries across industries like financial services, industrial, healthcare, technology, media, telecom, retail, and travel. Kyndryl differentiates itself through its deep engineering expertise, intellectual property, and a broad ecosystem of partners, including hyperscale cloud providers, system integrators, and software vendors. Its 'Kyndryl Consult' advisory and implementation services span all service practices. The company focuses on delivering high-quality, mission-critical services, leveraging its 'Kyndryl Bridge' operating platform and AI to provide insights and automation at scale.

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KD's technical outlook is decidedly bearish. The stock price has experienced a significant downtrend over the past 90 days, plummeting from approximately $42 to $27.425. The price is trading well below its 50-day SMA (30.25) and 200-day SMA (35.03), reinforcing the bearish trend. Momentum indicators are also weak. The RSI is at 45.77, suggesting continued selling pressure, and the MACD is negative (-0.457), further confirming the downward momentum. The STOCHd and STOCHk values indicate the stock may be oversold, but this may only provide a temporary bounce. The ADX is decreasing, but the overall trend is still down. Recent price action shows a consistent failure to sustain any upward movement, with each rally being met with renewed selling. The stock is trading below the lower Bollinger Band, and has been for some time, indicating that selling pressure is high and the stock is likely to continue moving down in the short term.

Kyndryl's MD&A presents a mixed picture. Total revenue for the three months ended June 30, 2025, was '$3,743 million', a slight increase from '$3,739 million' in the prior year. However, revenue growth in constant currency was '(3)%'. Net income increased by '$45 million' versus the prior-year period. The United States revenue declined '8 percent', while Japan revenue increased '2 percent', Principal Markets revenue increased '3 percent' and Strategic Markets revenue increased '3 percent'. Net cash used by operating activities was '$124 million', compared to net cash used of '$48 million' in the prior-year period. Signings increased by '$72 million', or '2%', compared to the prior-year quarter. The company believes that its existing cash and cash equivalents and revolving credit agreement will be sufficient to meet its anticipated cash needs for at least the next twelve months. Management expects that workforce rebalancing activities will reduce annual payroll costs and related expenses by more than '$100 million'. The company repurchased 1.8 million shares of its common stock at an aggregate cost of '$65 million' under the Share Repurchase Program.

Kyndryl's Q1 2026 earnings call conveys a moderately bullish outlook. CEO Martin Schroeter expressed enthusiasm, citing a '39% year-over-year increase in our adjusted pretax income in Q1'. The company reaffirmed its fiscal '26 outlook, expecting 1% constant currency revenue growth, with acceleration anticipated in Q2 and the second half. Kyndryl Consult revenue, a key growth area, grew 30% year-over-year, and hyperscaler-related revenue nearly doubled to $400 million. CFO David Wyshner highlighted a 240 basis point increase in adjusted EBITDA margin to 17.3%. Signings also increased 2% year-over-year. Management emphasizes the shift toward higher-margin post-spin contracts, with 67% of the P&L now derived from these contracts. They also project at least $725 million in adjusted pretax income for fiscal 2026 and roughly $550 million of free cash flow. The company repurchased $65 million of stock in the quarter, signaling confidence in its financial position. Overall, the call emphasizes strategic progress, margin expansion, and a commitment to returning capital to shareholders.

KD's financial performance presents a mixed but leaning bearish outlook. Revenue has fluctuated, starting at $4.073B in Q2 2024 and ending at $3.743B in Q1 2026, indicating inconsistency. The gross profit ratio has remained relatively stable, ranging from 0.159 to 0.217, suggesting consistent profitability challenges. Operating cash flow has been highly variable, with the latest quarter showing a significant outflow of -$124M, raising concerns about short-term liquidity. Total debt has remained high, hovering around $4B, with $4.178B in Q2 2024 and $3.956B in Q4 2025, indicating sustained leverage. Net income has also been inconsistent, with negative values in multiple quarters, including the most recent quarter at $56M. While revenue has been volatile, the negative operating cash flow and high debt levels suggest potential financial strain in the near term. The inconsistent profitability and cash flow trends warrant careful monitoring.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.