New York-based International Business Machines Corporation (IBM) has been an iconic tech giant for over a century, continually reinventing itself. With a market cap of $157 billion, it primarily earns from software and consulting services. Its offerings span cybersecurity, artificial intelligence (AI), and data analytics, tied together by its hybrid cloud platform with Red Hat. Its consulting arm helps clients modernize and digitally transform, often leveraging IBM products and strategic partnerships. Despite slow growth in its infrastructure segment, many industries still rely on IBM’s mainframe systems, Power servers, and storage products.
Shares of the multinational tech company have outperformed the broader market over the past 52 weeks. IBM has surged by 36% over this time frame, while the broader S&P 500 Index ($SPX) rallied 28.9%. However, in 2024, IBM’s 4.5% gains trail behind SPX's 11.2% gains on a YTD basis.
Narrowing the focus, IBM slightly underperforms the Information Technology ETF Vanguard’s (VGT) 38.5% return over the past 52 weeks.
Over the past year, IBM outpaced the broader market, capitalizing on the surging demand for hybrid cloud and AI. Its fiscal 2023 net income skyrocketed to $7.5 billion from $1.6 billion in 2022, and smart acquisitions like StreamSets and webMethods boosted their AI and hybrid cloud game, solidifying IBM's innovative edge and capturing investor interest.
Last week, IBM shares rose thanks to exciting developments. It is launching the IBM Granite model series for Salesforce, Inc.’s (CRM) Einstein 1 platform, partnering with AWS for AI governance, collaborating with Adobe Inc. (ADBE) on hybrid cloud and AI, and introducing cutting-edge code LLMs. These moves are set to enhance AI capabilities and drive client adoption, sparking investor optimism.
However, in 2024, shares of IBM tumbled on April 25, following mixed Q1 earnings results. Investors were let down by weak sales in its second-largest business unit, consulting, despite the buzz around IBM's acquisition of HashiCorp Inc., their biggest deal since snapping up Red Hat in 2019.
For the current fiscal year, ending in December, analysts expect International Business Machines' EPS to grow by 3% to $9.91. The company's earnings surprise history is solid. It beat consensus estimates in all of the last four quarters.
Among the 14 analysts covering the stock, the consensus rating is a “Hold.” That’s based on three “Strong Buys,” one “Moderate Buy,” eight “Holds,” and two “Strong Sells.”
This configuration has been consistent over the past months. However, it is slightly less bullish than a month before, with one “Strong Sell” rating.
On May 23, BMO Capital kept its “Market Perform” rating on IBM stock with a $190 price target after the Think 2024 event. Despite tough IT services competition, the analyst is cautiously optimistic about IBM's software potential, driven by strong free cash flow valuation. The analyst highlights promising opportunities without changing financial estimates or ratings.
The mean price target of $181.23 suggests a premium of just 6.1% to IBM's current levels. The Street-high price target of $209 represents that the stock could rally as much as 22.3%.
On the date of publication, Sristi Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
