IBM Stock Surges 12% in January on Strong AI and Cloud Computing Growth

In January 2024, International Business Machines' (IBM) stock leapt by 12.3%, as highlighted by data from S&P Global Market Intelligence. This surge reflects the market's enthusiastic response to the company's impressive earnings report, which has shone a spotlight on IBM's successful pivot towards cloud computing and artificial intelligence (AI) technologies.

Earnings Inspire Confidence

IBM's financial achievements outlined in their earnings report tell a story of modest, yet solid growth. The company reported a 4.1% increase in revenue over the previous year, totaling $17.4 billion, which slightly surpassed analyst expectations. Adjusted earnings saw a 7.5% increase to $3.87 per diluted share, another figure that outdid analysts' forecasts. While these numbers were encouraging, they weren't the main catalyst for investor excitement.

The more significant news was IBM's forward-looking statements, with the company predicting revenue growth in the mid-single-digit percentages for the next year—nearly double the rate anticipated by financial analysts. Further, IBM expects to generate around $12 billion in free cash flow in 2024, up from $11.2 billion the previous year and outperforming the company's own projections by $1.5 billion.

AI Success Drives Demand

The earnings report revealed an exciting development: a sizable increase in AI orders. IBM reported that by the end of the third quarter, AI service bookings, including those for generative AI and Watsonx AI services, were in the low hundreds of millions. This number had doubled by the year's end, with a considerable portion attributed to consulting services aimed at deploying and maximizing IBM's AI technologies.

The revelation of such robust demand for its AI offerings solidified IBM's positioning as a key competitor in the AI arena, which subsequently pushed its stock up by 9.5% the following trading day, reaching prices not observed since 2013.

AI Investment Opportunities

While IBM's journey up the AI ranks has been more measured, focusing on enterprise clients which require extensive testing and approval processes, this approach is now proving its worth. Despite the slower pace, IBM's stock appears to remain undervalued, with a current price at 2.7 times trailing sales and 13.6 times free cash flows. The company also offers a dividend yield of 3.7%.

Investors are advised to consider IBM as a potential addition to their portfolios, especially before an AI-driven growth surge fully materializes.

IBM, AI, Stock