International Business Machine Stock 
IBMThe technology and consulting giant has given up some of its recent gains. IBM stock is currently down 10% from its 52-week high of $239.35 and has been trading in negative territory since the beginning of the year. The decline highlights ongoing challenges within IBM’s consulting division.
Consulting businesses face headwinds from factors such as geopolitical uncertainty, inflation and rising interest rates. This situation has led companies to reduce discretionary IT spending. As a result, consulting revenue decreased slightly in the third quarter of 2024, remaining at the lower end of management’s expectations.
Headwinds continue for IBM
IBM is currently navigating a difficult macroeconomic environment with no immediate signs of improvement in customer spending behavior. IBM’s consulting revenue could continue to come under pressure as companies adjust their IT budgets to focus on generative artificial intelligence (AI) efforts. Management expects this trend to likely continue into the fourth quarter, with Consulting results remaining at the same level as the third quarter.
Adding to the challenges, the strengthening of the US dollar against other currencies could be a headwind for the company. Additionally, uncertainty surrounding the 2025 PC refresh cycle is a concern.
What will happen to IBM in 2025?
While the company’s consulting arm faces challenges, IBM is repositioning its portfolio toward high-growth, high-margin businesses such as hybrid cloud and AI. This pivot is in response to increasing customer demand for advanced technology to enhance business operations.
Additionally, the Consulting division’s improved portfolio mix, operating leverage and productivity initiatives are expected to generate strong margins and free cash flow.
IBM is likely to benefit from accelerating software revenue. The software sector is expected to see broad-based growth, with key areas such as hybrid cloud, data management, automation, and transaction processing expected to deliver strong results.
In terms of near-term growth, IBM’s contract revenue has shown impressive momentum, increasing in the mid-teens, with annual orders increasing at a double-digit pace in the third quarter. Additionally, opportunities from generative AI and its traction with virtualized solutions bode for growth.
In the software business, IBM witnessed solid growth on a recurring revenue basis. Additionally, that momentum is likely to be sustained by innovation across the software portfolio. The company’s hybrid platform and solutions annual recurring revenue (ARR) reached $14.9 billion in the third quarter, an 11% year-over-year increase, driven by advances in AI, automation, data services, and growing contributions from Red Hat. Additionally, the Transaction Processing segment posted 9% growth in the third quarter, reflecting capacity expansion, new generative AI product launches, and high renewal rates.
The company will continue to launch new products to support growth in 2025. Additionally, the acquisition of HashiCorp will have significant synergies for IBM. This acquisition will enable us to offer more comprehensive hybrid and multi-cloud solutions to our enterprise customers, effectively expanding our market reach and increasing our competitiveness.
IBM stock conclusion
While IBM’s consulting division may continue to face challenges in the short term, the company is optimistic about its long-term outlook as it continues to focus on improving margins. Despite a relatively weak demand environment, IBM appears well-positioned to profit from the generative AI market.
In the future, generative AI will also be a promising growth avenue for the consulting sector. IBM is building a portfolio of AI-driven solutions and reported $1 billion in new bookings for AI-related products in the third quarter. The company further strengthens its position in the AI space by collaborating with clients to develop custom AI architectures.
Additionally, we expect IBM’s software business to maintain its momentum and revenue growth to remain strong. This steady growth could be a key driver of the company’s financial performance going forward.
However, Wall Street analysts maintain a “hold” consensus rating on IBM stock. This cautious stance is due to the continued slump in the consulting business. Furthermore, given the company’s impressive performance over the past year, including a nearly 31% share price increase over the past 52 weeks, analysts’ average price target reflects limited upside potential in the near term. .
On the date of publication, Amit Singh did not have (directly or indirectly) any positions in any securities mentioned in this article. All information and data in this article are for informational purposes only. For more information, please see the Barchart Disclosure Policy here.
More news from Barchart Dell Technologies stock is underperforming – time to buy? Unusual option alert: Better wait for Arqit Quantum (ARQQ) As AI continues to heat up, is Salesforce stock a good buy now? 90 million reasons to buy Roku In stock
