IBM's shares experienced a 14% surge in value today.
IBM's shares saw a 13.6% surge during the early hours of Thursday, following the tech behemoth's impressive Q4 results. Analysts had predicted a profit of $3.78 per share on $17.54 billion in sales for the fiscal fourth quarter of 2024. However, IBM exceeded expectations, reporting an adjusted profit of $3.92 per share on sales of $17.56 billion.
Despite the positive sales figures, the quarter's growth was minimal, with a mere 1% increase in sales and a 1.5% rise for the full fiscal year. IBM's earnings for the quarter suffered a 13% decline year-over-year, totalling $3.09 per share. On a GAAP basis, the year's earnings fell by 21%, landing at $6.43 per share.
IBM CEO, Arvind Krishna, celebrated the quarter as a success, highlighting a doubling of revenue in the software segment and the rise of their generative AI book of business to over $5 billion, a QoQ increase of nearly $2 billion.
While investors might have had concerns about IBM's DeepSeek this week, Krishna still encourages viewing IBM as an artificial intelligence stock.
IBM boasted an impressive $12.7 billion in positive free cash flow in 2024, more than doubling their reported GAAP net income of $6 billion. Profit margins are also on the rise, with an operating profit margin increase of 50 basis points in the fourth quarter, and a full-year non-GAAP margin increase of 130 basis points.
Looking to the future, IBM projects a minimum 5% revenue growth for 2025, along with a moderately growing free cash flow of $13.5 billion. This places IBM at a market capitalization of about 17.7 times this coming year's free cash flow, a cheaper valuation than many current tech stocks, despite the modest 5% sales growth projection.
But, with many tech stocks trading at high multiples of earnings, investor sentiment may still find IBM's valuation somewhat steep, given its expected sales growth.
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IBM's future growth projections are promising, with prominent analysts maintaining a bullish outlook on the stock. The company anticipates double-digit annual revenue growth in its Software division, driven by strong performances in Red Hat and AI services.
IBM's AI business has experienced significant growth since mid-2023, with bookings exceeding $5 billion. Moreover, the company's focus on Generative AI technologies is expected to fuel a robust expansion in its Consulting segment.
The company has projected an impressive 5% annual revenue growth, beating analyst expectations of about 4% for FY26 and FY27. Meanwhile, the Software segment anticipates growth at an annual rate of about 10%, versus prevailing analyst projections of 7%-9% through 2027.
Overall, IBM's long-term financial outlook remains strong, with a sharp focus on AI and software that positions the company for significant growth in these segments. Analysts remain bullish on IBM stock, despite recent challenges encountered in the Consulting division, which is expected to recover as the market transitions towards GenAI technologies.
In light of IBM's promising future growth projections, investors might consider investing in the company, as many analysts have maintained a bullish outlook on IBM's stock. IBM anticipates doubling its annual revenue growth in the Software division, primarily driven by strong performances in Red Hat and AI services.
After such positive financial news, savvy investors might decide to allocate a portion of their finance portfolio to IBM, considering the potential returns from its growing AI business and software segment.
