Key points
- IBM shares have risen 14.42% over the past month, with a gap of 9.49% following better-than-expected fourth-quarter results.
- CEO Arvind Krishna attributes the success to the growing demand for artificial intelligence.
- With a dividend yield of 3.53%, IBM has a 28-year track record of increasing payouts to shareholders.
- 5 stocks we like better than International Business Machines
International Business Machines New York Stock Exchange: IBM shares are trading at their best levels in 10 years.
Take a look at the IBM chart: The stock is up 14.42% over the past month and 32.47% over the past three months. The stock broke out of a cup-and-handle base in November, rising above a buy point above $151.93.
IBM shares rose 9.49% on Jan. 25 after beating fourth-quarter estimates, as you can see using IBM earnings data from MarketBeat. The company beat analysts’ forecasts in both top and bottom lines.
What’s behind the beats and movement of the title? As with any tech stock, you might first guess that the reason is artificial intelligence, and that would be correct.
The AI business has doubled
In the fourth quarter earnings report, IBM CEO Arvind Krishna said, “In the fourth quarter, we grew revenue across all of our segments, driven by continued adoption of our hybrid cloud and artificial intelligence offerings. Demand for AI from customers is accelerating, and our portfolio of results Watsonx and generative AI business nearly doubled from the third to fourth quarters.”
Krishna referred to IBM’s Watsonx AI platform, which will launch in 2023. The technology allows users to create and train artificial intelligence models for a variety of business applications.
IBM has touted its AI business in recent quarters, but this marked the largest AI-driven one-day price move since the launch of Watsonx.
Analysts expect IBM to earn $10.13 per share this year, up 5% from 2023. Next year, it is expected to rise another 6% to $10.71 per share.
IBM long ago reinvented itself as a technology consultant, rather than a hardware manufacturer.
AI realization potential
Investors didn’t count IBM among AI’s top beneficiaries in 2023, even though the stock posted a one-year gain of 44.18% as shareholders realized there was potential.
This potential appears to have been realized, as earnings growth has accelerated over the past three quarters and revenues have returned to growth after being stagnant from late 2022 through mid-2023.
IBM is making it clear to investors that it has earned a place among the top AI stocks.
In the earnings report, IBM Chief Financial Officer James Kavanaugh cited revenue growth, as well as profit margin expansion, increased productivity and strong cash generation as strengths of the quarter.
“Throughout 2023, these strengths allowed us to increase our investments in R&D and talent and complete nine acquisitions to strengthen our hybrid cloud and AI capabilities, all while continuing to return value to shareholders through our dividend,” he said.
28 years of dividend increases
IBM’s dividend yield is 3.53%; the company has a 28-year track record of increasing shareholder payout. This gives IBM a spot on MarketBeat’s dividend list.
Over the past decade, IBM has returned capital to shareholders through share buybacks. This reduces the number of shares outstanding, increasing earnings per share. This, in turn, has the effect of increasing investor confidence, often leading to a higher stock price.
IBM’s earnings have increased over the past three years. The company’s three-year earnings growth rate is 16%. The three-year revenue growth rate is 4%.
In the earnings release, Krishna said revenue growth in 2023 is in line with the company’s expectations.
Analysts raise price targets
Forecasts from IBM analysts at MarketBeat show several price target increases from the fourth-quarter report. The consensus price target is $171.92. This is a disadvantage of 8.49%.
It is common for analyst targets to surpass the current price after a rapid run-up. Analysts may gradually adjust their targets to reflect long-term growth expectations.
In a research note on January 24, analysts at Bank of America increased their price target to $200, giving the stock a “buy” rating.
Despite the rapid growth, Bank of America NYSE:BAC considers IBM a defensive investment “given its high exposure to recurring sales, cost-cutting levers, strong balance sheet, potential stock gains and relatively stable margins.”
Bank of America also said it expects the company to make further cost cuts, as well as improve its service and software offerings through acquisitions.
“Longer term, we expect IBM to participate in IT spending with its Cloud and AI initiatives,” the analysts wrote.
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