IBM, a prominent player in the computer industry, has observed a nearly 10% surge in its market share over the last month. Several factors are contributing to IBM’s growth. To begin with, the third-quarter results were robust, with a 5% year-over-year revenue increase to \(14.4 billion and earnings slightly exceeding expectations at around \)2.20 per share. The consulting sector outperformed expectations, while the software industry saw an 8% year-over-year growth. Despite challenging market conditions, consulting sales rose by 6% year over year to $4.96 billion, with IBM highlighting its market share gains. On the other hand, sales in the hardware sector dipped slightly due to decreased demand for IBM’s computer systems like the z16 series introduced last year, as businesses scaled back IT investments amidst rising inflation and economic uncertainties. Nonetheless, IBM’s performance surpassed expectations.
IBM appears to be capitalizing on the growing interest in artificial intelligence this year, particularly with the implementation of ChatGPT. With decades of experience in AI technology, IBM is considered a pioneer in the AI landscape. The company aims to develop a more refined strategy for the current generative AI environment. IBM reported a rising adoption rate of its Watson X program by customers, with bookings for these AI products totaling in the “low hundreds of millions of dollars” for the quarter. Unlike tech giants such as Google and Microsoft, which focus on broader AI models for the general public, IBM is focused on creating tailored AI applications to help customers derive maximum value from their data. This approach could potentially lead to an annual run rate nearing \(1 billion. Additionally, IBM recently announced a \)500 million venture fund dedicated to investing in AI technology-focused startups.
Over the past three years, IBM’s stock has surged by 25%, climbing from around \(125 in early January 2021 to approximately \)155 presently. While IBM has shown growth, it has not consistently outperformed the market. In 2021, the stock returns were 6%, 5%, and 8%, respectively. However, IBM outperformed the S&P in 2021 and 2023, with returns of 27%, -19%, and 18% over the same periods. Despite the challenges faced by individual tech stocks like AAPL, MSFT, NVDA, GOOG, TSLA, and AMZN in consistently outperforming the S&P 500, the Trefis High Quality Portfolio, comprising 30 companies, has consistently outperformed the index due to its efficiency metrics.
IBM’s stock is currently trading at 16 times the consensus 2023 earnings, priced at around \(153 per share. Despite IBM’s recent slow growth rates, the focus on key areas like cloud computing, AI, and technology post divestiture of legacy businesses is viewed positively. IBM is also enhancing its portfolio through strategic acquisitions like Apptio, a technology spending management tool aimed at optimizing IT spending across cloud environments. The current market price of IBM stock aligns closely with its valuation at \)151 per share.
