IBM reported adjusted earnings of $2.43 per share on sales of $15.77 billion for its June-ended quarter, surpassing the analyst consensus of $2.18 per share on sales of $15.62 billion, as per FactSet. The company expects to exceed its prior guidance of $12 billion in free cash flow for 2024 and reaffirmed its expectations for mid-single-digit revenue growth for the year. As a result, IBM stock is up more than 3% at 190.30 in premarket trading.
IBM’s earnings per share increased by 11.5% for the second quarter, while sales rose by 2% year-over-year. The company’s software revenue grew by 7%, offsetting a 1% decline in consulting revenue. Software remained IBM’s largest division with $6.7 billion in sales, followed by consulting at $5.2 billion.
CEO Arvind Krishna noted strong demand for IBM’s AI offerings. “We had a robust second quarter, exceeding our expectations, driven by growth in both revenue and free cash flow,” Krishna stated. He highlighted the expansion of IBM’s generative AI business, which has reached over $2 billion in bookings since the launch of WatsonX a year ago.
IBM’s free cash flow for the quarter was $2.6 billion, bringing the first half of the year’s total to $4.5 billion. Evercore ISI analyst Amit Daryanani reiterated an outperform rating for IBM stock, setting a price target of 215.
ibm exceeds Q2 earnings expectations
“Overall performance is better than expected and the free-cash-flow guide is notable,” Daryanani commented. Jefferies analyst Brent Thill offered mixed feedback, citing optimism about the AI business doubling to $2 billion but noting misses in the Data & AI and Red Hat software segments. Thill maintained a neutral hold rating on IBM stock while raising his price target to 200 from 190.
“We believe shares could demand a higher premium to its consulting peers as the transition to a software company continues,” Thill wrote. “But concerns around the monetization of AI and the lack of a near-term catalyst keep us on the sidelines.”
On Wednesday, IBM stock traded sideways during a downbeat day for the markets, closing at 184.27. Year-to-date, IBM shares had gained 14.8%, outperforming the broader S&P 500.
However, the stock is off about 5% from a high near 199 reached in March. IBM’s backlog for AI-related projects has convinced investors about the technology’s potential. Despite broader market concerns about IT spending, the stock has seen a recovery in recent weeks.
IBM stock formed a cup base prior to its earnings statement, with a potential buy point of 199.18. The stock holds an IBD Composite Rating of 79 out of a best possible 99, indicating solid growth prospects.
