The evolution of the S&P 500 over the past century has often reflected broader shifts in the global economy, highlighting industries that defined their eras. One of the most significant transitions occurred in 1967, when IBM (International Business Machines) overtook Exxon (then known as Standard Oil of New Jersey) as the largest stock in the S&P 500. This marked the start of a new technological age, as the world moved from the industrial revolution into the era of computing and information technology.

IBM’s journey to the top of the financial markets is a tale of innovation, transformation, and adaptability, with roots that date back to the early 20th century.

The Early Days: Formation of IBM

IBM was originally founded in 1911 as the Computing-Tabulating-Recording Company (CTR) through the merger of four small companies that specialized in punch card processing, time recording, and other business machines. These technologies were vital for businesses and industries that needed to process large amounts of data quickly and accurately.

In 1924, under the leadership of Thomas J. Watson Sr., CTR was renamed International Business Machines (IBM). Watson was instrumental in shaping the company’s philosophy and growth, focusing on innovation, customer service, and global expansion. His famous mantra, “THINK,” became a driving force behind IBM’s success.

The World War II Turning Point

While IBM had been steadily growing throughout the early 20th century, the company’s transition to dominance began around World War II. During this time, IBM shifted from producing mechanical tabulating machines to developing electronic computing systems. This was a crucial pivot, as the world was on the cusp of a technological revolution.

After the war, IBM expanded its capabilities by focusing on electronic computing, a field that would become the foundation of the modern information age. The demand for more efficient data processing systems, driven by both business needs and government requirements, gave IBM the opportunity to lead the way in computing technology.

The Rise of Electronic Computing

The 1950s marked a significant turning point for IBM with the development of its early computers. In 1953, IBM launched the IBM 650, the world’s first mass-produced computer. The IBM 650 was a huge success, quickly becoming a mainstay in universities, research labs, and businesses. It set the stage for IBM’s dominance in the computing market.

But the company's true breakthrough came in the 1960s. By this time, IBM had not only established itself as the leader in business machines but also solidified its role in the emerging computer industry. This was the era when IBM’s early lead in electronic computing turned into market dominance.

The System/360: A Game-Changer

The release of the IBM System/360 in 1964 is considered one of the most significant milestones in the history of computing. It was revolutionary because it introduced the concept of a family of computers with compatible software and peripherals, allowing customers to upgrade to more powerful systems without having to completely replace their hardware. This level of flexibility was unheard of at the time and quickly became the industry standard.

The System/360 was not only a technological triumph but also a commercial success. Virtually every major company bought one from IBM, including financial institutions, government agencies, and manufacturing companies. This product line helped IBM solidify its position as the dominant player in the computer industry.

Surging Stock Price and Market Leadership

IBM's rapid innovation and growing influence in the tech space led to its stock price surging throughout the 1960s. The company’s strategic focus on large-scale computing systems, combined with strong demand from various industries, allowed IBM to capture a substantial share of the market. By 1967, IBM had become the largest stock in the S&P 500, overtaking Exxon and reflecting the broader transition from industrial to technological leadership.

From 1967 onward, IBM held the top spot in the S&P 500 for nearly three decades, a testament to its enduring influence and dominance in the computing industry. The company’s mainframe computers became essential tools for businesses, governments, and research institutions worldwide, driving massive growth in revenue and market capitalization.

The 1980s and 1990s: Challenges and Transition

However, by the 1980s and 1990s, IBM began to face increased competition from emerging tech companies such as Microsoft, Apple, and Intel. These companies were capitalizing on the rise of personal computing and software, which were beginning to replace mainframes as the focus of the tech industry.

While IBM was still a major player, it struggled to adapt quickly to the new personal computing paradigm. The company’s focus on large-scale business solutions became a hindrance as consumers and smaller businesses shifted to more affordable, personal computing solutions offered by competitors. Microsoft’s dominance in software (especially with the Windows operating system) and Apple’s pioneering efforts in personal computing marked the beginning of IBM’s decline from the top spot in the S&P 500.

By 1992, after holding the title of the largest company for nearly three decades, IBM was overtaken by Microsoft and other tech companies, which were rising in prominence due to the growth of personal computers and software solutions.

IBM’s Legacy and Ongoing Evolution

Despite losing its top position in the S&P 500, IBM remains a significant force in the tech industry. The company has continually evolved, focusing on areas such as artificial intelligence (AI), cloud computing, and quantum computing. Its Watson AI platform and investments in enterprise cloud services demonstrate IBM’s ongoing commitment to innovation and adaptation in a rapidly changing tech landscape.

IBM’s legacy, however, will always be tied to its leadership in the computing revolution. Its contributions to business technology, the development of mainframe computers, and the introduction of scalable computing systems have had a lasting impact on the industry.

Conclusion

IBM’s rise to the top of the S&P 500 in 1967 was a pivotal moment in the history of both the company and the technology industry. The transition from industrial giants like Exxon to tech leaders like IBM reflected the broader shift towards a technology-driven economy. IBM's System/360 and other innovations positioned it as the global leader in computing for decades, and while it faced challenges from new competitors in the 1980s and 1990s, its influence on the tech industry is undeniable.

Even today, IBM continues to innovate, proving that its legacy as a pioneer in computing is still very much alive.