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IBM’s Q4 Earnings: Why AI Will Be a Key Theme

Published 24/01/2024, 17:40
IBM
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IBM (NYSE:IBM) is slated to report its Q4 financial results on Wednesday, and many investors are keen to gain insights into the company’s growth, particularly in artificial intelligence (AI). Excitement about IBM’s accelerated AI efforts has been growing steadily, pushing the company’s shares more than 27% in the past three months.

What Wall Street Expects from IBM’s Q4 Report

IBM shares have staged a strong uptrend recently as investors grow increasingly confident about the company’s position to capitalize on the booming field of AI. IBM is set to unveil its Q4 earnings following the market close on Wednesday, and investors will be looking for indications of the company’s advancements in that sector then.

For the fourth quarter, analysts predict IBM’s revenue to reach $17.3 billion, a 3.6% increase from last year, with earnings per share at $3.79. Anticipated software revenue is $7.7 billion, up 5.3%, while consulting revenue is expected to grow by 7.3% to $5.1 billion. However, the infrastructure business, primarily mainframe computers, is projected to decline by 4.5% to $4.3 billion.

IBM’s 2023 full-year growth is forecasted to be in the 3% to 5% range, targeting free cash flow surpassing $10.5 billion. Analyst consensus aims for $10.7 billion in free cash flow for the year.

Looking ahead, market expectations for 2024 include revenue of $63.5 billion, a 2.9% increase, and earnings of $10 per share. This fiscal year, the projected free cash flow in 2024 is edging to $11 billion.

With investors notably excited about IBM’s AI play, the company’s shares have risen 7.7% in 2024, outperforming the broader S&P 500 index. The stock gained more than 27% over the past three months.

IBM’s Progress in the AI Field

Though it began gaining traction recently, IBM began making strides in the AI sector years ago.

Notably, the company has strategically pursued numerous AI-focused acquisitions, enhancing its capabilities in data quality and hybrid cloud solutions. The acquisition of Databand.ai in July 2022 focused on monitoring data pipelines, which is crucial for averting errors that can lead to substantial costs.

Under the leadership of Arvind Krishna since 2020, IBM has assimilated 25 companies, emphasizing a commitment to a long-standing AI strategy. Recent acquisitions, such as Manta Software in October 2023, integrate well into IBM’s Watsonx ecosystem of generative AI and AI model deployment.

Furthermore, in November, IBM initiated a $500 million AI venture fund to incorporate generative AI startups and research into Watsonx seamlessly. In a strategic move in early December, IBM collaborated with Meta Platforms (NASDAQ:META) to introduce the AI Alliance, spanning academia, finance, and government sectors.

Watsonx was introduced in response to the ChatGPT phenomenon, with IBM integrating generative AI capabilities into its app development and data analytics platform. This business-focused system leverages IBM’s data-processing features, combines them with user-specific data, and generates valuable, actionable insights—essentially ChatGPT in a business-oriented package.

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This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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