IBM’s stock (NYSE:IBM) experienced a substantial surge on Wednesday, peaking at a 3.7% increase before settling at a 2.8% gain by 1:05 p.m. ET. The sudden uptick in the stock’s value can be attributed to a notable outperform rating assigned by Matthew Swanson, an analyst from RBC Capital, signifying a notable shift in the company’s overall outlook.
Swanson, an industry expert, recently set a price target of $188 for IBM, marking the highest target established for the company on Wall Street. His assessment is underpinned by a belief that IBM’s software and consulting services are undervalued and well-positioned to capitalize on emerging post-pandemic trends in cloud computing and artificial intelligence (AI) that have added complexity to IT landscapes.
This optimistic perspective on IBM comes on the heels of several strategic maneuvers by the tech giant, including the acquisition of Red Hat, a prominent open-source software provider, in 2019, and the appointment of Arvind Krishna as CEO in 2020. These transformative actions have played a pivotal role in reshaping the once bleak outlook for IBM, primarily due to the competitive pressures from Silicon Valley’s cloud juggernauts.
While IBM did encounter a modest 0.4% dip in revenue last quarter, primarily attributed to cyclical downturns in its hardware and infrastructure segments, the company’s software division exhibited robust growth, expanding by 7.5% on a constant currency basis. Key drivers of this expansion included Red Hat’s impressive 11% growth, a 10% surge in data and AI products, and a 5.3% increase in the consulting segment.
The strategic acquisition of Red Hat has proven instrumental for IBM, enabling businesses to effectively manage intricate IT environments encompassing public clouds, private clouds, and on-premises computing, all governed by complex computing and governance rules.
IBM’s commitment to artificial intelligence was also evident throughout this year, marked by seven hybrid cloud and AI acquisitions completed in 2023. In May, the tech giant unveiled the Watsonx platform in partnership with the open-source AI startup Hugging Face, offering a comprehensive suite of services for generative AI, data storage, and data governance across various cloud environments.
Despite its history of subdued financial performance, IBM is gradually earning investor confidence. As major players in Silicon Valley focus on developing proprietary solutions within their respective cloud ecosystems, IBM has the potential to establish a formidable presence in assisting enterprises in navigating complexity and managing multi-cloud environments.
At present, IBM’s stock boasts a 4.5% yield, making it an enticing choice for investors seeking dividend opportunities. Furthermore, the company’s software portfolio appears to be in a stronger position compared to previous years. However, the success of its Watsonx platform remains contingent on its ability to compete effectively in the fiercely competitive AI sector.
