After a positive year, what 2025 holds for IBM?

International Business Machines Corporation (NYSE: IBM) has delivered impressive financial performance in 2024 by focusing on higher-value businesses. The company’s software business experienced stable growth, offsetting softness in its consulting business amid cautious enterprise spending on technology.

IBM’s stock made significant gains last year, driven by positive sentiment surrounding its AI portfolio, led by the Watsonx platform. After growing an impressive 48% through the year, the shares hit an all-time high of $238.04 in early December. The tech titan is a top dividend payer, offering a bigger-than-average yield of about 3%. The company has remained a favorite among income investors by consistently increasing its dividend payout for over three decades. Currently trading at a reasonable valuation, IBM has a strong upside for the long term.

AI Power

The company looks poised to take advantage of the ongoing artificial intelligence boom through its well-structured AI solutions, outweighing weaknesses in some of the legacy businesses. The performance of Consulting, the second-largest business division, has been lackluster in recent quarters. Watsonx, the generative AI platform designed for enterprise clients, has elicited strong customer interest. It could become a key growth driver when the strong orders translate into revenues.

At the same time, after strengthening its cloud footprint by acquiring Red Hat a few years ago, the company has been aggressively expanding the hybrid-cloud business, giving competition to market leaders Microsoft and Amazon Web Services.

Software Leads

In the third quarter, IBM’s revenue increased modestly to $15.0 billion from $14.75 billion in the comparable period of 2023 but fell short of expectations. Software continued to be the main growth driver, with a 10% growth in that business more than offsetting weakness in the other areas. Adjusted earnings from continuing operations were $2.30 per share in Q3, higher than the $2.20 per share the company earned a year earlier. Interestingly, quarterly earnings have consistently beat estimates for about four years.

On an unadjusted basis, it was a net loss of $330 billion or $0.36 per share in the September quarter, compared to a profit of $1.70 billion or $1.84 per share in the prior year’s quarter. The tech firm is scheduled to report fourth-quarter results on Wednesday, January 29, after markets close. The management expects Q4 revenues to be consistent with third-quarter levels, on a constant currency basis.

CEO Arvind Krishna commented on IBM’s AI initiatives in a recent interaction with analysts, “We continue to gain traction in enterprise AI. Our book of business related to generative AI is now over $3 billion inception to date, up more than $1 billion quarter-over-quarter. The mix is roughly one-fifth software and four-fifth consulting signings. This performance has placed us in an early leadership position, which is crucial at the onset of any technology shift. The AI portfolio we have built is designed to give clients a comprehensive set of tools to deploy AI within their enterprise.”

This week, IBM shares traded well above their 12-month average value. On Friday afternoon, the stock was trading up 1%.