This week was known as Magnificent Seven week, part one, as four of the largest companies in the world posted quarterly earnings. But neither Tesla, Microsoft, Meta Platforms, nor Apple made much of an impact this week, one way or the other. However, there was one AI stock and technology pioneer that did — IBM, a company that was once the largest in the world.
IBM, also known as Big Blue, was the second-best performing stock on the S&P 500 this week, rising 13.5%. Big Blue was fueled by its solid fourth quarter results and robust outlook. IBM stock is up about 16% year-to-date and around 36% over the past 12 months, trading at $255 per share.
### Transforming through AI
IBM revenue and earnings estimates were propelled by its software business and its AI capabilities. The firm generated $17.6 billion in revenue in the quarter, which was up just 1% year over year. This exceeded estimates of $17.4 billion. Net income fell 11% in the quarter to $2.9 billion, or $3.11 per share. On an adjusted basis, net income was up 3% to $3.7 billion, or $3.92 per share, which exceeded consensus estimates of $3.75 per share.
Revenue gains got a boost from its software segment, which posted a 10% increase to $7.9 billion. The software business is IBM’s largest, and it includes cloud services as well as its AI platform. Cloud services via its Red Hat business saw revenue rise 16%, while the data and AI segment generated a 4% revenue spike in the quarter.
### Well positioned for 2025
IBM stock shot higher mainly because of its AI-fueled growth. IBM anticipates 5% revenue growth and $13.5 billion in free cash flow for the full year 2025. In 2024, IBM had free cash flow of $12.7 billion which was $1.5 billion more than the previous year. The abundance of cash was fueled by IBM’s high profit margin of 59.5% in Q4 and 56.7% for the full year.
IBM has one of the best dividends on the market. The $1.67 per share quarterly dividend has a 2.59% yield. IBM has raised its dividend annually for 25 straight years, making it a Dividend Aristocrat.
### A Dividend Aristocrat
IBM got a bunch of price target upgrades post earnings, including a $20 bump from BMO to $280, a $26 increase from RBC to $276 per share, and a $25 increase from Jefferies to $270 per share. While IBM’s P/E ratio is high at 40, its forward P/E is reasonable at 24. IBM may not be as magnificent as it once was, but its performance this week was stellar. And based on its balance sheet, growth in AI, and decent forward P/E, it should have more good days ahead.
In conclusion, IBM’s strong performance this week showcases its transformation through AI and its solid outlook for the future. With a focus on innovation, enhanced portfolio, and a culture of growth, IBM is well-positioned for 2025 and beyond. Its status as a Dividend Aristocrat and the positive reception from analysts post-earnings further solidify its position as a key player in the technology industry. Investors should keep an eye on IBM for potential growth opportunities and stability in their investment portfolios.