IBM on the Rise: Smart Investments in AI and Cloud are Paying Off

IBM is currently experiencing an impressive year. With a stock increase of nearly 60% over the past twelve months, the technology giant reached a peak of USD 227.67 on October 7. The reason for this success lies in the strategic focus on artificial intelligence and cloud computing, which not only drives revenue growth but also strengthens Wall Street's confidence in IBM's future. Amit Daryanani, an analyst at investment bank Evercore ISI, raised his price target for IBM from USD 215 to USD 240 in September. The stock price also benefited from the Federal Reserve's interest rate cut. Whether the current surge justifies buying IBM shares remains an intriguing question. CEO Arvind Krishna has successfully focused on AI and cloud since 2020, as confirmed by the sharply increased demand for AI. IBM's software division, which revolves around cloud and AI, achieved revenue of USD 6.7 billion in the second quarter, representing a 7% increase compared to the previous year. This division accounted for 43% of total revenue in Q2. Particularly noteworthy is the AI program watsonx, introduced in 2023, which boosted the business by more than USD 2 billion. IBM remains active in the AI and cloud sectors, for example, through the upcoming acquisition of cloud automation provider HashiCorp. This acquisition could further boost revenues in 2025. Despite a slight decline in the consulting sector due to macroeconomic factors, this area is considered to have strong long-term growth potential. An additional point in favor of IBM stock is the strong free cash flow (FCF), which increased to USD 2.6 billion in the second quarter. The company forecasts an FCF of over USD 12 billion for 2024. This enables investments, debt reduction, and the continued payment of dividends, which remain an enticing factor for many shareholders. Ultimately, caution should be exercised when purchasing IBM shares due to the high price. Analysts currently see IBM more in a hold position, with an average price target of USD 207. It might be worthwhile to wait for a price decline to invest in this steady dividend stock in the AI sector. However, some analysts urge caution and advise not to focus solely on IBM when selecting promising stocks. Their focus is on a broad selection that could promise high returns.