IBM is a hot stock pick for the first time in years, as Big Blue prepares to report first-quarter results on Wednesday. But it may take another positive performance to keep the rally going.
IBM stock has gained about 13% so far this year, compared to a roughly 6% gain for the S&P 500. Shares are up about 47% over the past 12 months. But the gains have slowed in recent weeks amid a choppy overall market. IBM is down about 7% from a 52-week high of 199.18 reached in mid-March.
Still, the 112-year-old tech giant is trading at levels not seen in a decade. Shares gapped up following IBM's fourth-quarter earnings report in late January. Analysts expect that the company will benefit from excitement about generative artificial intelligence. It was IBM, after all, that invented the Watson supercomputer that famously became a Jeopardy! champion more than a decade ago.
With excitement about AI still at peak levels, IBM is offering WatsonX, a broader platform to help enterprises work with the technology. The firm's AI progress will be among factors analysts are monitoring for IBM.
By The Numbers
Analysts project that IBM will post adjusted earnings of $1.60 per share, up 17.6% from the same quarter a year earlier, according to FactSet. Sales are projected to rise 2% to $14.53 billion.
Last week, Evercore ISI analyst Amit Daryanani placed IBM on the firm's Tactical Outperform list. He wrote that he expects "moderate upside" to consensus estimates.
"We think recent macro and IT spending data points have been improving and consulting momentum should continue," Daryanani wrote.
One potential cause of concern, however, is that tech consulting rival Accenture lowered its fiscal year guidance last month.
"Overall growth expectations are being weighed down by the consulting segment, with several negative read-throughs from consulting peers calling out concern over discretionary spending," wrote Jefferies analyst Brent Thill in a client note Tuesday. "However, the software segment stands in contrast as a bright spot that will continue to accelerate growth, driven by AI demand."
Thill holds a neutral view on IBM overall, however, citing the lack of a "near-term catalyst" for the stock.
IBM Stock: AI Progress
Analysts will be listening for updates of generative AI. In the company's fourth-quarter earnings call in January, Chief Executive Arvind Krishna said that IBM's book of business for AI and its WatsonX product doubled between the third and fourth quarter earnings reports. That implied roughly $400 million in bookings, according to analyst estimates.
"We expect this to have further increased to over $500 (million) and expect further evidence of Enterprise AI proof of concepts and look for color on pipeline," wrote Bank of America analyst Wamsi Mohan, in a client note Tuesday.
Mohan is among the Wall Street analysts most bullish on IBM stock. He rates the company's shares as a buy with a price target of 220.
Goals For 2024
Investors will also be listening for an update on IBM's goals for 2024. The company impressed analysts in January when it targeted mid-single-digit revenue growth and $12 billion in free cash flow for 2024.
On the stock market today, IBM stock is up 1.5% at 184.58.
IBD MarketSurge shows that IBM stock has formed a flat base, with a potential buy point of 199.18.
Meanwhile, the company's stock Relative Strength Rating checks in at 88 out of a best-possible 99, indicating IBM stock has outperformed 87% of the market over the past 12 months, according to IBD Stock Checkup.
