IBM Shares Rise on Emerging AI Trend

IBM shares are poised to reach their highest closing level since April 2017, indicating growing interest from investors in the company as an underappreciated player in the emerging generative artificial intelligence (AI) trend.

• The stock has been on an upward trajectory for nine consecutive days, showcasing a growth of more than 5% during this period.

Adding to the positive sentiment, Wamsi Mohan, an analyst at BofA Global Research, has reiterated his "Buy" rating on IBM shares. Mohan has also raised his target price from the recently surpassed $155 to $170.

As of early afternoon trading on Tuesday, IBM shares have risen by 0.5% to reach $161.93. In contrast, the Dow Jones Industrial Average has experienced a 0.3% decline.

Although IBM shares have increased by 15% since the beginning of this year, they continue to lag behind the S&P 500's 19% gain and the tech-heavy Nasdaq Composite's impressive 36% rally. Notably, IBM's rally this year occurred predominantly since mid-October.

Mohan believes that IBM is strategically positioned to achieve its long-term model by 2024, which predicts mid-single-digit revenue growth driven by both software and consulting revenue. Furthermore, he anticipates low-single-digit growth in the company's transacting process business in 2024, along with double-digit growth at Red Hat, IBM's open-source software arm.

While Mohan expects the company's hardware business to be relatively subdued in 2024, he predicts an acceleration in 2025 due to a new mainframe cycle.

IBM Anticipates Strong Result for 2024

A Promising Turnaround for IBM

Mohan views IBM as a favorable turnaround opportunity, driven by both improving revenue growth and increased generation of free cash flow. Additionally, the company continues to offer an attractive dividend with a current yield of over 4%. Mohan emphasizes the underappreciation of IBM's AI software portfolio and sees significant long-term potential in recent advancements made in quantum computing.

Advancements in AI and Quantum Computing

IBM recently established an "AI Alliance" in collaboration with Meta Platforms and various other partners. This alliance aims to develop tools and resources for open source generative artificial intelligence large language models.

Furthermore, IBM held a quantum computing conference in New York on Monday. During this event, updates were provided on the latest quantum processor, and the Quantum System Two computer system was officially launched. Customers now have access to this system online.

In conclusion, IBM is anticipated to achieve impressive results in 2024, driven by its focus on revenue growth, expanded operating margins, and restructuring of retirement plans. The company's AI software portfolio and breakthroughs in quantum computing contribute to its long-term potential for success.