IBM stocks undergoing decline in value.

IBM stocks undergoing decline in value.

Buckle Up: IBM's Stock Dip Could Lead to Big Gains

Wall Street witnessed IBM's stock tumbling in after-hours trade yesterday, despite a 17% leap in net income to $2.9 billion. While international business struggled due to a robust US dollar, revenue stagnation in Q4 2022 dampened the spirits. But, there's a silver lining to this dip.

The temporary setback opens an enticing entry point. After years of struggle, revenue has been on an uptrend post the Kyndryl spin-off, and earnings have been soaring thanks to a focus on high-margin businesses. For 2023, IBM envisions mid-single-digit growth in revenue. While the company has avoided providing specific earnings guidance, it aims to boost free cash flow from $9.3 billion to $10.5 billion. To weather the looming economic slowdown, CEO Arvind Krishna has announced a tight cost-cutting plan, slashing about 1.5% of the global workforce.

Analysts, basing their estimates on revenue and margin targets, project an EPS of $9.59 for 2023, translating to a P/E ratio of approximately 15 - an unparalleled figure for a tech giant focus on cutting-edge technologies like artificial intelligence, cloud, and quantum computing. The juicy dividend yield of almost 5% is an added perk.

But wait, there's more! The robust free cash flow, reliable dividends, and strategic positioning in the tech sector provide compelling reasons for optimism. IBM's cash cow - the mainframe business, is geared up for a z17 launch in June 2025, projected to spur 2-3 year upgrade cycles and revenue acceleration by Q4 2025. The z17's on-chip AI inferencing capabilities could cash in on demand for secure, low-latency AI workloads from banks and governments.

Moreover, the software segment, which saw a 9% YoY growth in Q1, is fortified by Red Hat and AI-driven hybrid cloud adoption. IBM's $6B annualized AI business and the HashiCorp integration could unlock cross-selling opportunities. AI is expected to further accelerate consulting profitability by automating delivery processes.

Despite the risks posed by a soft macroeconomy and slumping consulting signings, IBM's mission-critical IT services and mainframe-driven cyclicality offer a recession-resistant revenue floor. So, hold tight, folks! The IBM roller coaster might just be gearing up for a thrilling ride.

Disclaimer:The CEO and majority shareholder of the publisher Boersenmedien AG, Mr. Bernd Foertsch, holds positions in the financial instruments mentioned in the publication, including IBM.

• IBM's stock dip, despite a 17% leap in net income to $2.9 billion in 2022, could lead to big gains for investors, as the temporary setback opens an enticing entry point.
• Analysts project an EPS of $9.59 for 2023 for IBM, translating to a P/E ratio of approximately 15, which is an unparalleled figure for a tech giant focusing on cutting-edge technologies like artificial intelligence, cloud, and quantum computing.
• IBM's focus on high-margin businesses and centrifugal revenue growth after the Kyndryl spin-off adds to the optimism, with Mid-single-digit revenue growth projected for 2023.
• The z17 mainframe business launch in June 2025, coupled with AI-driven hybrid cloud adoption, on-chip AI inferencing capabilities, and the HashiCorp integration, could unlock cross-selling opportunities and contribute to revenue acceleration by Q4 2025. (851399 was not used in the given sentences as it wasn't mentioned in the provided text)

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