IBM (IBM) stock rose late Wednesday after the company reported second quarter earnings and sales ahead of analyst expectations. The Dow Jones tech giant also slightly upped its full-year guidance for free cash flow and highlighted strong AI demand.
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IBM said it earned an adjusted $2.43 per share on sales of $15.77 billion for its June-ended quarter, in an earnings statement posted late Wednesday. Analysts polled by FactSet projected IBM would post adjusted earnings of $2.18 per share on sales of $15.62 billion.
Further, IBM said it expects to exceed its previous guidance for $12 billion in free cash flow for 2024. The firm reiterated its guidance for mid-single-digit revenue growth for the year.
On the stock market today, IBM stock is up more than 2% at 188.11 in recent after-hours action.
IBM Q2 By The Numbers
IBM’s earnings per share increased 11.5% for Q2 while sales increased 2% from a year earlier. Software sales increased 7%, making up for a 1% decrease in consulting revenue.
The company highlighted demand for its AI-related offerings.
“We had a strong second quarter, exceeding our expectations, driven by growth in both revenue and free cash flow,” Chief Executive Arvind Krishna said in a news release. “We continue to see that clients turn to IBM for our technology and our expertise in enterprise AI, and our book of business for generative AI has grown to more than two billion dollars since the launch of Watsonx one year ago.”
IBM’s free cash flow for the June-ended quarter was $2.6 billion. The firm has generated $4.5 billion in free cash flow for the first six months of the year.
IBM Stock In Cup Base
In regular trading action Wednesday, IBM stock traded sideways in a downbeat day for the markets before closing at 184.27.
Coming into the report, IBM stock had gained 14.8% this year, slightly ahead of gains by the broader S&P 500. But the shares are off about 5% from a high near 199 that the stock reached in March.
Shares of the more-than-century-old tech giant rallied starting late last year. The company’s growing backlog for AI-related work convinced investors that the technology could power new growth for the company.
While OpenAI’s ChatGPT launched the generative AI hype, IBM brought attention to AI more than a decade ago with its Jeopardy!-winning Watson supercomputer. IBM is now offering broader enterprise AI services under the title WatsonX.
But a so-so first quarter earnings report in April and broader concerns about the market for IT spending set IBM back from spring highs. The stock has begun to recover in recent weeks, however, coming into the report.
IBD MarketSurge shows that IBM stock formed a cup base prior to its earnings statement, with a potential buy point of 199.18.
Meanwhile, IBM stock has an IBD Composite Rating of 79 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Analyst View On IBM Stock Prior To Report
Ahead of the report, analysts at Evercore ISI placed IBM on the firm’s Tactical Outperform watchlist. The firm cited the company’s “muted stock price performance” of late compared to what it views as improving fundamentals. Those factors could allow IBM to outperform tempered expectations, in Evercore’s view.
“We expect the company to report moderate upside vs. consensus revenue/EPS estimates ($15.6B/$2.18 per share),” Evercore analyst Amit Daryanani wrote. “Our sense is that, while the enterprise IT spending backdrop remains cautious (excluding AI), we think a combination of Red Hat acceleration, improving consulting fundamentals, and initial AI momentum will drive better-than-expected results and improving trends for the balance of (2024).”
Red Hat is an open-source software firm IBM acquired for $34 billion in 2019.
Still, other IBM bulls were more cautious coming into the report. BofA Securities analyst Wamsi Mohan rates IBM stock a buy, reiterating that call in a recent earnings preview note to clients. But he said there are risks ahead.
“Gen AI ($1 billion backlog) is a meaningful opportunity for both consulting and software,” Mohan wrote. “However IBM also faces headwinds, including (a) soft macro environment and back-end loaded profitability with tough compares in (Q4).”
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