IBM (NYSE: IBM) Beats Even Its Own Expectations

The 5% jump in IBM (NYSE: IBM) shares yesterday should tell you everything you need to know about the New York company’s most recent earnings. Their Q4 report was released after the bell rang to end Monday’s session, and even though equity markets saw high levels of volatility again yesterday, for IBM at least it was all one-way action. 

On the whole, it was a solid quarter for a company that’s been working hard to get itself out of the doldrums. For context, even with yesterday’s pop, IBM shares are still trading at 2010 levels, and only marginally above 1999 levels. But Wall Street is nothing if not forward looking, and we could be about to see a fresh uptrend start. 

Impressive Numbers

Though revenue for the quarter was down 18% year on year, it was still well ahead of what analysts were expecting. So too was their bottom line EPS. Other key business units and metrics that shone included their cloud and cognitive software unit (up 8% year on year) and their consulting unit (up 13%  year on year). CEO Arvind Krishna summed up the result when he said "our fourth-quarter results give us confidence in our ability to deliver our objectives of sustained mid-single-digit revenue growth and strong free cash flow in 2022. The trend we are seeing is clear. IBM is seeing high demand for our capabilities in several areas, including hybrid cloud”, where the company now has 3,800 clients, or 1,000 more than a year ago. 

Shares were trading up again in Wednesday’s pre-market session and look set to leave their most recent low from November in the rear view mirror. If they can crack $145 in the next few sessions they’ll be in a strong position to break out of the multi-year consolidation that’s held them back. The folks over at Citi certainly think this is possible, and were asking themselves in the wake of Tuesday’s report if IBM “has turned a corner?”. 

Analyst Jim Suva maintained his Neutral rating on IBM stock, saying it was still too early to make a clear change to the upside, but he’ll be watching to see if IBM can keep this trend going. In a note to clients he wrote "we look to see if this single data point of earnings can turn the corner into a sustainable trend from improvement aside from easy year-over-year comparables." 

Dan Ives from Wedbush felt that IBM’s results bolstered the case for tech stocks, even as the sector is experiencing some of its reddest days in months in recent days. Equities in general, but particularly high growth tech stocks, have been struggling to match the performance of the past few years so far in 2022, as the Federal Reserve has made it clear it’s about to start raising rates. While investors were happy to buy into non-profitable tech stocks that held a ton of potential when interest rates were near all time lows, with higher than forecasted borrowing rates set to dent profitability they can’t seem to stop selling them.

Tech Strength

But Ives said the “tech sector has provided investors with at least something to turn positive about, as IBM’s results suggest the market for cloud-technology spending is looking strong this year.” This optimistic sentiment has been bolstered by Microsoft’s (NASDAQ: MSFT) earnings which were released this morning and smashed analyst expectations. Investors will have to wait and see how the likes of Apple (NASDAQ: AAPL), reporting tomorrow, do, and if it means Netflix’s (NASDAQ: NFLX) catastrophic report from last week can be written off as a streaming problem rather than a tech problem.

For now at least, IBM investors can feel a bit more hopeful about the future, notwithstanding that more longer term challenges remain. Indeed, it was only two weeks ago that the folks over at UBS downgraded their rating on the stock from Neutral to Sell, and dropped their price target to $124. It will be interesting to see if their tone changes, but either way, you have to be thinking that it’s still not quite the right time to go all in on IBM.