We recently published 10 Buzzing News to Watch as Investors Look for Best AI Stocks Amid Fed Rate Cuts. International Business Machines Corporation (NYSE:IBM) is one of the best AI stocks amid Fed rate cuts. Ben Reitzes, Melius Research head of technology research, earlier in October talked about the impact of AI on software. The analyst pointed out to new catalysts for IBM. “The last couple of years has been AI eating software, and it’s a complete unwinding of 'software is eating the world.' You’re seei ...

Financial Performance and Key Metrics - In 2024, IBM generated $62.8 billion in revenue, growing 3% at constant currency, and delivered $12.7 billion in free cash flow, up $1.5 billion from the previous year [14] - The operating gross profit margin expanded by 130 basis points, driven by demand for high-value offerings and a focus on productivity [14] Business Line Performance - Software revenue grew by 9% at constant currency, supported by strong momentum in data and AI, automation, transaction processing, and security [15] - Consulting revenue increased by 1% at constant currency, reflecting sustained demand for AI deployment and digital transformation [15] - Infrastructure revenue declined by 3% due to the product cycle, although the IBM Z16 mainframe program achieved record client adoption and workload scale [15] Market Data and Key Metrics - More than 90% of Fortune 500 companies utilize IBM's hybrid cloud offerings, indicating strong market penetration [19] - The generative AI book of business has grown to over $5 billion, showcasing IBM's commitment to AI solutions [18] Company Strategy and Industry Competition - IBM is focusing on artificial intelligence and hybrid cloud as the two most transformative technologies, aiming to provide enterprise-grade solutions that are efficient and cost-effective [16][17] - The company emphasizes a client zero philosophy, using its own technology internally to drive automation and efficiency [22] Management's Comments on Operating Environment and Future Outlook - The management acknowledges the uncertainty in the macro environment but believes IBM's diverse portfolio positions it well for future challenges [35] - The company maintains its full-year guidance for accelerating revenue growth to over 5% and approximately $13.5 billion in free cash flow [39] Other Important Information - IBM has increased its dividend for 29 consecutive years, reflecting its commitment to returning value to shareholders [14] - The stockholder proposal for transparency in lobbying did not receive a majority of votes cast [25] Q&A Session Summary Question: Update on IBM's AI strategy - The AI landscape is evolving, moving towards smaller, open, and fine-tuned models that deliver real business value, which aligns with IBM's focus [27][28] - IBM's Granite model family continues to evolve, emphasizing purpose-built AI for business applications [29] Question: Quantum computing strategy - IBM is recognized as the industry leader in utility-scale quantum computing, with significant advancements in hardware and software [31][32] - The company has met its quantum roadmap goals, releasing the IBM Heron processor, which is significantly faster and more efficient than its predecessor [32] Question: Macro environment impact - IBM's diverse business portfolio provides resilience against market uncertainties, and the company is well-positioned to meet client needs for cost savings and productivity gains [35][36]

Financial Data and Key Metrics Changes - The company reported revenue growth of 3% for 2024, with total revenue reaching approximately $63 billion [6][18] - Free cash flow for the year was $12.7 billion, marking the highest level of free cash flow generation in many years [6][18] - Operating pre-tax income was $11.2 billion, with operating earnings per share at $10.33, reflecting a 7% increase [18][22] - The operating pre-tax margin expanded by 120 basis points, contributing to a 9% growth in operating pre-tax profit and a 14% increase in free cash flow [18][19] Business Line Data and Key Metrics Changes - Software revenue grew by 9% for the full year, with a notable 11% growth in Q4, driven by strong performance in Red Hat, automation, data and AI, and transaction processing [18][20][24] - Consulting revenue was up 1% for the year but down 1% in Q4, impacted by a dynamic market environment [19][20][29] - Infrastructure revenue decreased by 3% for the year and 6% in Q4, reflecting product cycle dynamics, particularly with the Z16 mainframe [19][20][32] Market Data and Key Metrics Changes - The software segment now constitutes about 45% of the company's business, with over $15 billion in annual recurring revenue (ARR) growing at double digits [10][18] - The generative AI book of business grew to over $5 billion, with a quarter-over-quarter increase of approximately $2 billion [11][12] - The company reported strong signings and a healthy backlog, with an 8% year-over-year increase in backlog levels [30] Company Strategy and Development Direction - The company aims for revenue growth to inflect higher to 5% plus in 2025, supported by a strong portfolio and ongoing investments in innovation [16][36] - The focus remains on enhancing the software-led integrated platform, with expectations of approaching double-digit growth in software [36][37] - The company is actively pursuing M&A opportunities, particularly in a more favorable regulatory environment, to enhance its capabilities [51][52] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of technology in driving sustainable growth amid geopolitical tensions, interest rate volatility, and evolving cyber threats [9][81] - There is optimism in the business climate for 2025, with expectations of improved growth compared to 2024 [81] - The company anticipates that software budgets will remain a priority for clients, reinforcing confidence in revenue growth [83] Other Important Information - The company has made significant investments in R&D, with expenses up 13% year-over-year, reflecting a commitment to innovation [21][23] - The balance sheet remains strong, with cash of $14.8 billion and a reduction in debt by $1.6 billion to $55 billion [23] Q&A Session Summary Question: Can you provide context around linearity for the 2025 guidance, particularly H1 versus H2? - Management indicated a strong portfolio execution in software, with expectations of a normal seasonal pattern, and noted that consulting growth may accelerate in the second half of the year [45][46] Question: What are the thoughts on M&A in a potentially lower regulatory environment? - Management expressed optimism about a more rational regulatory environment, which could facilitate reasonable deals, and indicated a willingness to pursue acquisitions that meet their criteria [51][52] Question: Can you highlight the confidence in consulting revenue recovery? - Management acknowledged the dynamic macroeconomic environment but expressed confidence in the consulting segment's growth potential, particularly driven by generative AI initiatives [60][62] Question: What software products are expected to stand out in the coming years? - Management highlighted the Watson X family and Red Hat products as key drivers of future software performance, emphasizing their role in enterprise AI deployments [63][64]