My recent column on IBM (IBM:NYSE - news - boards), The Next Big Bomb: Big Blue! generated a lot of controversy and contention. Even Cramer waded in with a recommendation to buy on the strength of its product cycle. He's right that IBM is enjoying momentum from new product cycles in both hardware and software. But Cramer is wrong to recommend buying IBM at these levels, as the potential reward is meager when contrasted with the possible downside.

Even assuming IBM can meet earnings expectations of about $5 a share this year, the stock is still very overvalued at more than $110. For the long term, even sanguine analysts project IBM to be growing at a modest 12% to 13% rate. While Cramer may recommend paying today's inflated price for IBM, there are several reasons why a more reasonable price for IBM would be 13 to 15 times the current year's earnings estimate, or $65 to $75 a share:

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• Revenue: IBM has been struggling mightily for several quarters to spark the top line. Even back in the go-go times of a year or two ago, when other tech companies were rapidly multiplying sales, IBM had difficulty increasing the top line more than 2% or 3%. Going into the final quarter of last year, IBM had missed sales expectations for four consecutive quarters. It met revenue targets for the fourth quarter only because they had been reduced earlier in the year. And the sales gain of 6% in the fourth quarter was distinctly unimpressive, as it was compared against the year-earlier quarter of negative 5% revenue growth.

• Accounting: I am not going to cast aspersions on IBM accounting -- but I am uncomfortable granting a high price-to-earnings ratio on earnings that appear to be artificially inflated by charges on a seemingly annual basis. Also, earnings expectations have been narrowly met because of stock buybacks. Is this the best use of cash for a company that already has ample debt of $27 billion?

• Internet Bubble Is Over: I know that the Internet buildout for speculative startups was not a large part of IBM's business. A sales slowdown in this relatively small incremental business for IBM may make achieving earnings expectations a problem. More important to me, though anecdotal, is the sense I get from blue-chip companies (primary IBM customers) that there is no longer any panic to build out an Internet presence quickly.

• Cannibalization: Mainframe software is a key source of profit for IBM. IBM sales of Unix servers (not as profitable) are making market-share gains at the expense of IBM mainframes. Cannibalization is one reason new products from this fine company are not having a meaningful effect on gross sales.

• EMC's Threat: EMC (EMC:NYSE - news - boards) appears to me to be a tangible threat to IBM's server and related software business. To the extent IBM continues to lose ground in storage, there is a major risk down the road that IBM will not be able to meet 12% to 13% growth goals.

• Visibility: When many of the top tech CEOs in America admit they have little, if any, visibility for the balance of 2001, why should investors risk their capital on IBM, the lone large technology company yet to lower expectations for 2001?

On the positive side, there are some reasons IBM may be able to come close to earnings estimates for 2001:

• Currency: A strong dollar significantly hurt IBM last year. To the extent the dollar weakens -- a real possibility if the Federal Reserve aggressively lowers interest rates -- IBM could get a sizeable bump to reported numbers. Though this would not be indicative of a permanent upswing in the business, it may be enough to get IBM through a challenging year for tech.

• Product Cycles: As I said, Cramer is right that IBM is at a sweet spot in its product cycle, with strong new offerings in both hardware and software. Is it sufficient to overcome a pronounced slowdown in IT spending? Stay tuned!

• Lower Interest Rates: As the Fed lowers, most stocks will enjoy multiple expansion. And to the extent the economy picks up, perhaps IT spending will expand as well.

Should You Short IBM?

Maybe I should have been more clear in my prior column, but I am not recommending that investors short IBM. Even if I am right that IBM is overvalued, it does not mean the stock will go down in the near term. Some of the emails I received questioned whether I short stocks for my clients. As a rule, I am always on the long side. When I am bearish I tend to build up cash, as opposed to trading on the short side.