IBM stock was up some 6% Thursday after a solid Q2 earnings report
Big Blue was within the black on Thursday as IBM (NYSE:IBM) stock rose greater than 6% after reporting second quarter earnings.
IBM surpassed analysts’ estimates within the quarter, with revenue rising 2% year-over-year to $15.8 billion, topping estimates of 15.6 billion.
Net income jumped 14% year-over-year to $1.8 billion, or $1.99 per share. That fell in need of median earnings estimates of $2.18 per share, but when adjusted to exclude acquisition and other costs, IBM beat estimates with adjusted earnings of $2.43 per share, beating $2.20 per share estimates.
With Thursday’s gains, IBM stock is up about 20% year-to-date (YTD).
Gen AI drives earnings
IBM generated most of its income from its software business, which saw revenue rise 7.1% within the quarter to $6.7 billion. Consulting revenue was down 1% to $5.2 billion, while infrastructure revenue ticked up 1% to $3.9 billion.
AI has been driving earnings across the business, IBM Chairman and CEO Arvind Krishna said on the earnings call with analysts, particularly its watsonx platform.
Launched only one 12 months ago, watsonx is a generative AI platform that essentially allows business clients to coach and fine-tune their very own AI models.
“We proceed 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 greater than two billion dollars since the launch of watsonx one 12 months ago,” Arvind Krishna, IBM chairman and CEO, said.
The firm was also capable of boost its free money flow to $2.6 billion within the quarter, up from $2.1 billion the identical quarter a 12 months ago. Through the primary six months of the 12 months, IBM has amassed $4.5 billion in free money flow, $1.1 billion higher than the primary half of 2023.
Further, its gross profit margin rose to 56.8%, up from 54.9% in the identical quarter a 12 months ago, while its operating margin is 14.1%, up 110 basis points year-over-year.
“Our strong money generation enables us to proceed investing in innovation and expertise across the portfolio, while returning value to shareholders through dividends,” James Kavanaugh, IBM senior vice chairman and chief financial officer, said.
IBM raises outlook without cost money flow
IBM has the most effective dividends available on the market, and the influx of free money flow should help it sustain it. Currently, IBM pays out $1.67 per share at a yield of three.63%. It has increased its annual dividend every 12 months for the past 24 straight years.
For the complete 12 months, IBM maintained its growth projections, calling for mid-single-digit revenue growth. Nonetheless, it raised its operating margin guidance by half some extent and increased its estimate without cost money flow to $12 billion.
IBM’s strong second quarter results led several Wall Street analysts to boost the stock’s price goal, including Stifel, BMO Capital, Jefferies, JPMorgan Chase, and RBC Capital.
Still, modest growth is anticipated, as Stifel, for instance, raised it to $205, which is just 6% higher than its current $193 per share price. JPMorgan only raised it to $195, which is barely higher than the present price.
Is IBM stock a buy?
IBM stock is one to placed on your radar for just a few reasons. First, it is comparatively low-cost, with a P/E of 20 and a forward P/E of 18.
Second, its rapid growth in its generative AI platform is encouraging, with its book of business growing to $2 billion in only a 12 months, across its various segments. Its specialty in AI training is a potentially lucrative area of interest, as increasingly firms use AI and wish their models to be trustworthy and reliable.
Finally, its free money flow is impressive, as it’s going to allow it to keep up its already great dividend and spend money on its business and technology.
IBM stock is up 20% already YTD, so it’s uncertain how far more it’s going to rise within the near term. But as a dividend stock its value a buy, and as a protracted term hold it’s a solid option.