IBM has successfully repositioned itself as a leader in enterprise AI and hybrid cloud solutions, which in turn has steered improved financial performance and shareholder returns.
The company’s software-led strategy, expanding AI capabilities, strategic acquisitions, and robust cash flow generation create a compelling growth picture. While challenges remain in the infrastructure and consulting segments, the firm’s overall trajectory and leadership in high-growth technology areas support its status as a top investment opportunity for 2025.
The stock trades at 22.5 times the company’s forward earnings forecast. That value’s justified by the company’s strategic transformation into a software and AI-driven enterprise with significantly improved growth prospects.
IBM (New York symbol IBM; www.ibm.com) is one of the world’s largest computer firms, with operations in over 175 countries.
IBM has four main divisions: Software (44% of revenue in the latest quarter) provides a variety of software programs that help businesses operate their cloud computing and AI applications; Consulting (35%), through over 16,000 consultants, helps businesses design, install and run their computer systems; Infrastructure (20%) makes and installs mainframe computers for large organizations that process huge volumes of transactions; and Financing (1%) provides loans to businesses that purchase IBM’s mainframes and services.
IBM often buys other companies to enhance its expertise. It cuts the risk of using acquisitions to expand by targeting smaller firms that are easier to absorb.
For example, in September 2024, the company agreed to buy Accelalpha. Based in Bellevue, Washington, this firm helps businesses implement and manage applications that run on the cloud platforms of software developer Oracle Corp. (New York symbol ORCL). The purchase price has not yet been disclosed.
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The acquisition strengthens IBM’s consulting operations and enhances its nearly 40-year collaboration with Oracle.
More recently, IBM acquired consulting firm Hakkoda Inc. for an undisclosed sum. Based in New York City, Hakkoda helps customers in the financial services, public sector and healthcare sectors move their computing systems to cloud-based platforms.
The acquisition gives IBM access to Hakkoda’s high-quality clientele, particularly as they begin to incorporate artificial intelligence tools into their systems.
IBM: A dividend payer with a 29th consecutive annual increase
IBM reported better-than-expected results for its latest quarter. That’s mainly due to strong demand for its artificial intelligence (AI)-related software and consulting services.
In the three months ended December 31, 2024, revenue rose 1.0%, to $17.55 billion from $17.38 billion a year earlier. That topped the consensus forecast of $17.54 billion. If you exclude exchange rates, revenue in the quarter rose 2%.
Earnings before unusual items also improved 2.9%, to $3.69 billion from $3.59 billion. Due to more shares outstanding, per-share earnings rose at a slower pace of 1.3%, to $3.92 from $3.87. That also beat the consensus estimate of $3.78.
With the June 2024 payment, IBM raised your quarterly dividend by 0.6%, to $1.67 a share from $1.66. The new annual rate of $6.68 yields a solid 2.8%. The company has paid regular dividends since 1916 and has increased the annual rate each year for the past 29 years.
The company’s dividend has grown an average of 0.6% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Above Average.
IBM will probably earn $10.70 a share in 2025, and the stock trades at 22.5 times that forecast. That’s a reasonable multiple in light of the company high research spending (12% of revenue) and AI products.
Recommendation in Canadian Wealth Advisor: IBM Corp. is a buy.
