International Business Machines Corporation (NYSE: IBM) achieved remarkable financial success in 2024 by concentrating on high-value sectors. The company’s software division showed steady growth, which helped counterbalance the decline in its consulting business due to cautious technology spending among enterprises.
IBM’s stock enjoyed robust growth last year, fueled by optimistic sentiments regarding its AI portfolio, particularly the Watsonx platform. After achieving a substantial increase of 48% throughout the year, the shares reached an unprecedented high of $238.04 in early December. This tech giant is a prominent dividend payer, boasting an attractive yield of approximately 3%. Its reputation as a favorite among income investors is reinforced by its track record of consistently increasing dividends for over thirty years. Given their reasonable valuation, IBM shares offer significant long-term potential.
AI Growth
The company is well-positioned to benefit from the ongoing artificial intelligence revolution, leveraging its advanced AI solutions to mitigate challenges in certain legacy sectors. The performance of Consulting, its second-largest division, has recently been underwhelming. However, Watsonx, designed specifically for enterprise clients, has received strong customer interest and could emerge as a vital growth engine as robust orders convert into revenue.
Additionally, after bolstering its cloud capabilities through the acquisition of Red Hat, IBM has been rapidly expanding its hybrid-cloud services, competing effectively against industry leaders like Microsoft and Amazon Web Services.
Software Dominance
In the third quarter, IBM saw its revenue rise modestly to $15.0 billion from $14.75 billion in the same quarter of 2023, although it did not meet analysts’ expectations. The Software segment continued to be the primary catalyst for growth, posting a 10% increase that overshadowed weaknesses in other divisions. Adjusted earnings from continuing operations reached $2.30 per share in Q3, surpassing the previous year’s $2.20 per share. Notably, quarterly earnings have consistently exceeded forecasts for nearly four years.
On a raw basis, IBM reported a net loss of $330 million, or $0.36 per share, in the September quarter, in contrast to a profit of $1.70 billion, or $1.84 per share, in the same quarter the previous year. The company is set to announce fourth-quarter results on Wednesday, January 29, after the market closes, with management anticipating Q4 revenues to align with those of Q3 on a constant currency basis.
During a recent discussion with analysts, CEO Arvind Krishna elaborated on IBM’s AI strategies, stating, “We continue to gain traction in enterprise AI. Our generative AI business has now surpassed $3 billion since inception, increasing by more than $1 billion quarter-over-quarter. This comprises approximately one-fifth software and four-fifths consulting agreements. This performance has secured us an early leadership position, which is essential at the beginning of any technological shift. The AI portfolio we’ve built equips clients with comprehensive tools for deploying AI within their enterprises.”
This week, IBM shares were trading significantly above their 12-month average value, with the stock up 1% by Friday afternoon.
