Since its origins in 1911, IBM has mostly been a leader in the tech industry, reaching control of 70% of the global computer market by 1970.
In the two decades that followed, IBM was the largest listed company in the US, showcasing the shift from industrial dominance to tech dominance.
However, with the appearance of new competitors and the changes experienced by the personal and corporate computer markets, IBM businesses suffered major setbacks that left the company’s share stagnant for more than a decade and pushed leadership to find new ways for the company to thrive.
Ginni Rometty served as IBM’s CEO from 2012 to 2020.
She led the transformation of the company from traditional hardware and software into a leader in cloud computing and artificial intelligence.
She is also responsible for the development of IBM’s AI platform Watson.
Though she has her fair share of critics, it wouldn’t be wrong to say that the foundation of IBM’s today’s success was laid by her.
After Rometty’s tenure, the current CEO Arvind Krishna, has invested heavily in expanding IBM’s capabilities in AI and the development of new technologies like quantum computing.
Additionally, Krishna led a restructuring process that aimed to re-skill the workforce’s capabilities to be ready for the new opportunities that will arise.
Why all the buzz about IBM today?
More than a decade of transformation has allowed IBM to take advantage of the new opportunities in the hybrid cloud market, particularly through its Watson platform.
Its ability to integrate AI capabilities into its existing cloud services, especially in sectors like finance, healthcare, and customer services has led to revenue growth.
Furthermore, IBM’s introduction of WatsonX(enterprise AI services) promotes the enhancement of the AI platform through open-source innovation, allowing businesses to customize solutions to meet their specific needs.
Its $100 million collaboration with the University of Tokyo and the University of Chicago focused on groundbreaking advancements in quantum computing technologies, also shows its commitment to helping develop emerging technologies.
Thanks to all these developments, analysts are not expecting a 5% growth in 2025, a much bigger growth rate than the 2% for 2024.
According to Evercore ISI analyst Amit Daryanani, even these estimates are conservative, which is why IBM stock has a lot more to run in this bull rally.
Valuation continues to remain attractive
Another factor that contributes to a sustainable upside is the stock’s current valuation.
Even at new all-time highs, IBM stock remains attractive relative to Microsoft and Amazon, two of its principal rivals in the cloud business.
The company has an attractive price-to-earnings (P/E) ratio of 25.7, against an industry average of over 44.
Microsoft’s current P/E ratio stands at 35.2 while Amazon’s stands at at 60.1.
While its growth metrics are quite modest compared to MSFT and AMZN, the fact that IBM is growing in specific segments such as Hybrid Cloud and AI indicates a strategy that could bear long-term results.
IBM continues to generate large amounts of free cash flow.
This allows the company to keep investing heavily in R&D while returning income to its shareholders in the form of dividends.
This safety will start attracting investors soon once the company’s predicted growth rate starts to materialize.
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