This Overlooked Dividend Stock Could Be a Quiet AI Winner

Core Viewpoint - Investors should pay attention to IBM stock as it has made significant pivots into artificial intelligence (AI) and cloud computing, positioning itself for potential growth [1][2]. Company Reemergence - IBM stock has been overlooked as it steadily dropped over the last decade while other tech stocks rose [4]. - The turning point for IBM began in 2019 with the $34 billion acquisition of Red Hat, which established IBM as a key player in cloud computing, particularly in hybrid cloud technologies [5]. AI and Quantum Computing - IBM's cloud services, particularly through watsonx, are essential for companies utilizing AI, providing the necessary computing power and data storage [6]. - IBM's advancements in AI could enhance its leadership in quantum computing, with plans to release a "fault tolerant" quantum computer by 2029 [7][8]. Financial Performance - In the first half of 2025, IBM reported nearly $32 billion in revenue, a 4% increase compared to the same period in 2024, with an 8% annual increase in Q2 [10]. - Operating income grew by 14% year-over-year in the first two quarters, although net income declined by 5% due to higher income tax expenses [11]. - IBM forecasts $13.5 billion in free cash flow for the year, up from $12.7 billion, which exceeds expected dividend costs of $6.2 billion [12]. Stock Performance and Valuation - Since Arvind Krishna took over in April 2020, IBM's total returns have outperformed the S&P 500, with the stock recently reaching new record highs [13]. - The current P/E ratio is 45, significantly higher than the 10 P/E ratio at the time of Krishna's appointment, but the forward P/E ratio is 25, indicating potential for continued investment [15]. - IBM's dividend yield of 2.4% is approximately double the S&P 500 average, reflecting a strong payout history of 30 consecutive years [12]. Conclusion - IBM has transformed into a quiet winner in the AI space, with its strategic acquisition of Red Hat and advancements in quantum computing positioning it for future growth [16][17].