Why IBM Stock Was Up 14% Today

Core Viewpoint - IBM's stock price increased significantly after reporting better-than-expected earnings and sales, but overall growth remains modest, raising questions about its valuation in the AI tech sector [1][2][5]. Group 1: Earnings Performance - IBM reported an adjusted profit of $3.92 per share, exceeding analyst expectations of$3.78, with sales of $17.56 billion, slightly above the forecast of$17.54 billion [1]. - Despite the positive adjusted earnings, GAAP earnings for the quarter declined 13% year-over-year to $3.09 per share, and for the full fiscal year, GAAP earnings fell 21$6.43 per share [2]. Group 2: Revenue Growth - Sales growth for the fourth quarter was minimal at 1%, and for the entire fiscal year, sales increased only 1.5% [2]. - The CEO highlighted double-digit revenue growth in the software segment and reported that the generative AI business has reached over $5 billion, up nearly$2 billion quarter-over-quarter [3]. Group 3: Cash Flow and Profit Margins - IBM generated $12.7 billion in positive free cash flow in 2024, which is double the reported GAAP net income of$6 billion [4]. - The company improved its operating profit margin by 50 basis points in the fourth quarter and saw a 130 basis point increase in non-GAAP margins for the full year [4]. Group 4: Future Guidance - Management expects revenue growth of at least 5% for the current year and a modest increase in free cash flow to $13.5 billion [5]. - With a market capitalization of$239.5 billion, IBM is valued at approximately 17.7 times the projected free cash flow, which is considered cheaper compared to many other tech stocks, although concerns remain about the low sales growth rate [5].