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International Business Machines (IBM) has lost some of its sheen in recent years due to the emergence of revolutionary technologies such as artificial intelligence (AI), robotics and quantum computing, among others, in which IBM has been perceived to have fallen behind.
That said, the deep selloff roiling the markets has not spilt over into the IBM stock. In fact, while market darlings like Nvidia (NVDA), Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOGL) have corrected sharply this year, IBM’s shares have outperformed and are up nearly 14% in the year to date.
Director Buys 1,000-Plus Shares
Besides its outperformance, investors may be interested in a return of insider buying activity in IBM stock.
On Feb. 28, Director David N. Farr bought 1,200 shares of the company at an average price of $249 per share for a total value of about $300,000.
A former chairman and CEO at Emerson Electric (EMR), Farr has been a director at IBM since 2012.
Why did Farr buy stock, and should investors follow suit?
Q4 Earnings Beat
Farr’s confidence about IBM may have been due to the company’s results for the most recent quarter in which its earnings beat expectations.
In Q4, IBM reported quarterly revenues of $17.55 billion compared to $17.4 billion in the year-ago period. The software segment, which made up more than 45% of overall revenue, came in at a substantial $7.9 billion, up 10.4% from the previous year. Further, gross margins for the segment expanded to 85% from 84.1%.
Earnings witnessed year-over-year growth of 1.3% to $3.92, coming in ahead of the consensus estimates of $3.78. Remarkably, this marked the 16th consecutive quarter of earnings beats from the company.
A drop in the net cash flow from operating activities to $4.3 billion from $4.5 billion in the previous year may be a concern. However, free cash flow increased to $6.2 billion versus $6.1 billion in the prior year. Overall, IBM exited Q4 with a healthy cash balance of $13.9 billion which was much above its short-term debt of $5.1 billion.
Encouraging Drivers
IBM’s leadership has taken a forward-thinking approach to artificial intelligence, positioning the company favorably within the evolving tech landscape. The firm closed the year with significant momentum in AI-driven growth. Bookings for its AI-related offerings have now surpassed $5 billion, marking a substantial $2 billion increase from the previous quarter.
While many AI-focused companies experienced market turbulence following the emergence of DeepSeek, IBM capitalized on the situation. Its management viewed this shift as validation of its strategy, which prioritizes smaller, scalable open-source AI models that thrive in a landscape shaped by cost-efficient AI developments. This approach aligns with IBM’s continued commitment to its Granite family of AI models, which underwent optimization last year to improve cost efficiency by approximately 90% compared to larger counterparts. Red Hat has also remained a cornerstone of IBM’s broader AI framework.
IBM’s consulting division is expected to see a notable lift from the ongoing adoption of generative AI, particularly as corporate spending conditions improve. The firm’s management is optimistic about gaining market share in this segment, further strengthening its competitive position.
The company’s strategic alliances have further bolstered its outlook, including a major deal with Amazon Web Services and an extended partnership with Advanced Micro Devices (AMD). =
Beyond AI and hybrid cloud initiatives, IBM continues to invest in automation, transaction processing, mainframe development, and quantum computing. Its acquisition of Apptio has enhanced its ability to assist enterprises with IT capital allocation, leveraging automation across business processes, infrastructure, and AIOps.
A leader in quantum computing, IBM is expanding accessibility through the IBM Quantum Data Center while preparing to launch a new mainframe cycle in the latter half of 2025. This next iteration is anticipated to mirror the success of its z16 series, reinforcing IBM’s continued strength in the sector.
With AI at the core of its strategy, IBM is well-positioned to act as a leading systems integrator for enterprises, capitalizing on the rising demand for advanced computing solutions.
Analyst Opinions on IBM Stock
Taking all of this into account, the overall analyst is cautiously optimistic with a rating of “Moderate Buy” for the stock with a mean target price that is just 1% higher. The high target price of $320 denotes upside potential of about 28.5% from current levels.
Out of 18 analysts covering the stock, six have a “Strong Buy” rating, one has a “Moderate Buy” rating, nine have a “Hold” rating, and two have a “Strong Sell” rating.
