Key Points IBM's watsonx platform focuses exclusively on enterprise AI solutions, not consumer applications. Banks and healthcare systems are already using IBM's AI while maintaining strict regulatory compliance. The enterprise AI market is projected to reach $600 billion by 2028, with IBM leading the charge. 10 stocks we like better than International Business Machines › With other tech giants sparring over consumer chatbots, IBM (NYSE: IBM) is quietly positioning itself to dominate a different ...

Core Viewpoint - IBM's latest earnings report disappointed investors, particularly due to underperformance in its software and consulting divisions, despite the company's stock having surged over 30% year-to-date, significantly outperforming the S&P 500 index [1][2][3] Financial Performance - IBM's second-quarter software sales grew by 10% year-on-year to $7.39 billion, slightly below Wall Street's expectation of $7.49 billion [2] - The consulting division's sales increased by only 3% to $5.31 billion, indicating a slowdown in growth [2] - Overall, IBM's total sales rose by 8% year-on-year to $17 billion, surpassing analyst expectations of approximately $16.6 billion [5] - The infrastructure business saw a significant 14% increase in sales to $4.14 billion, exceeding expectations of $3.66 billion [5] Business Segments - IBM's infrastructure business has become a key driver of growth, with strong demand from large enterprises, particularly in finance and retail sectors [5][6] - The company reported that bookings related to AI have exceeded $7.5 billion since mid-2023, with about 80% coming from the consulting division [3][6] Future Outlook - IBM maintains its full-year sales growth forecast of at least 5% at constant currency rates, aligning with Wall Street expectations [6] - The company anticipates free cash flow to exceed $13.5 billion, also in line with analyst estimates [6] AI and Quantum Computing - IBM's focus on AI and quantum computing is seen as crucial for driving future growth, with significant investments in AI developer ecosystems and quantum computing capabilities [9][10] - The company has announced that its quantum business orders have surpassed $1 billion, aiming to enter the "quantum practical" era by the end of the decade [10] - IBM's AI platform, watsonx, supports a comprehensive range of AI tools and models, catering to various developer needs [9][10]

Core Viewpoint - The tech sector offers attractive dividend opportunities, with IBM and AT&T being prime examples of companies that have delivered solid dividends and impressive gains for investors over recent years [1]. Group 1: IBM - IBM's shares have more than doubled in the past three years due to a successful turnaround, driven by its focus on hybrid cloud computing and artificial intelligence [3]. - The company anticipates at least 5% growth in currency-adjusted revenue for 2025, alongside projected free cash flow of approximately $13.5 billion [3]. - IBM has secured $6 billion in generative AI-related bookings, leveraging its watsonx platform and consulting services to address enterprise needs [4]. - The latest dividend increase was minimal, raising the quarterly dividend to $1.68 per share, resulting in a yield of around 2.3% [5]. - With rising free cash flow, IBM's dividend is expected to consume less than half of its free cash flow in 2025, allowing for potential debt reduction and future dividend hikes [6]. Group 2: AT&T - AT&T's shares have surged about 110% since mid-2023, as investor sentiment has improved following previous challenges related to media acquisitions [7]. - The company is concentrating on expanding its 5G wireless and fiber networks, having recently reached its 30 millionth fiber location and planning to double this by 2030 [8]. - For 2025, AT&T projects a 3% growth in mobility service revenue and a mid-teens percentage increase in consumer fiber revenue, with free cash flow expected to exceed $16 billion [9]. - The current quarterly dividend stands at $0.2775 per share, yielding 3.8%, with approximately $8 billion allocated for dividends this year, representing about half of its free cash flow [10]. - AT&T has maintained its dividend payments since cutting them during the WarnerMedia spin-off, but plans to resume share repurchases and may consider a dividend increase soon [11].

Core Insights - IBM's stock has reached all-time highs, driven by strong retail investor interest and trading volume, raising questions about the sustainability of this momentum [1] - The recent rally is attributed to IBM's successful execution of its core strategy focused on making AI practical for large enterprises, particularly through its watsonx platform [2][3] - The company's generative AI business has exceeded $5 billion, indicating strong customer demand, supported by strategic acquisitions like HashiCorp for automation and security tools [3][4] Financial Performance - IBM's Q1 2025 earnings report surpassed analyst estimates, demonstrating the positive impact of its strategic initiatives on financial results [4] - The stock's trailing P/E ratio is around 50, but the forward P/E ratio is more moderate at 27, reflecting market expectations of future AI-driven earnings growth [6] - IBM's dividend has been increased for the 30th consecutive year, with 43% of cash flow covering the dividend, indicating sustainability [7] Market Reaction - Analysts are responding positively to IBM's strategic execution, with the stock receiving a consensus rating of Moderate Buy and price targets raised by firms like Wedbush and Bank of America to $325 and $320 respectively [11] - Over the past year, IBM shares have gained approximately 69%, with a year-to-date increase of over 32%, including a notable 10-day winning streak in June [11] Future Outlook - Investors should monitor key metrics such as revenue growth in new software segments, free cash flow strength, and updates on the HashiCorp integration in future earnings calls to confirm the breakout [8] - The combination of price momentum, analyst upgrades, and solid AI execution suggests that IBM's rally may represent the early phase of a significant and sustained breakout [9][10]

Important News - The U.S. trade deficit reached a record high in March due to tariffs leading to stockpiling of goods [1] - The EU plans to impose additional tariffs on approximately €100 billion (about $113 billion) worth of U.S. goods if ongoing trade negotiations do not yield satisfactory results [1] - Canadian Prime Minister Carney is set to meet with Trump to discuss trade and relations between the two countries [1] Company News - IBM (IBM.N) and Oracle (ORCL.N) announced an expansion of their partnership to advance agent-based AI and hybrid cloud, integrating IBM's flagship AI product suite, watsonx, into Oracle Cloud Infrastructure (OCI) [2] - The U.S. Department of Justice filed documents in federal court requiring Google (GOOG.O) to divest two core assets from its online advertising business—AdX advertising trading platform and publisher ad server [2] - DoorDash (DASH.N) has reached an agreement to acquire the UK-based food delivery platform Deliveroo for £2.9 billion (approximately $3.9 billion) in equity value [2] - Piper Sandler recently warned that under the worst-case scenario of reduced capital expenditures and continued weak demand in the Chinese market, NVIDIA's (NVDA.O) data center business could face an impact of up to $9.8 billion in annual revenue [2] - AstraZeneca (AZN.O) announced that a new indication for its BTK inhibitor has been approved by the EU for the treatment of mantle cell lymphoma, marking it as the first and only approved inhibitor for this indication in the EU [2] - Tesla (TSLA.O) saw a 62% year-over-year decline in new car sales in the UK for April, marking the lowest level in over two years [2] - Pony.ai (PONY.O) and Uber (UBER.N) announced a strategic partnership, with Pony.ai's Robotaxi service and fleet set to integrate into the Uber platform in the second half of this year [2][3]

Core Viewpoint - IBM is expected to report lower revenues in its Consulting segment due to macroeconomic uncertainties, but product innovation and deal wins may provide some support [1][6]. Factors at Play - IBM's Consulting segment offers strategy, technology, and intelligent operations services, leveraging hybrid cloud and AI technologies from IBM Software and strategic partners like AWS, Microsoft, Oracle, and SAP [2]. - The collaboration with Juniper Networks aims to enhance productivity in enterprise workflows by integrating IBM's watsonx platform with Juniper's Mist AI, improving IT network management and user experiences [3]. - IBM Consulting launched new AI Integration Services to transform end-to-end processes using agentic AI, focusing on building applications with persona-based user experiences and real-time data integration [4]. - The deployment of IBM's services by UAE's e& for a Generative AI governance solution highlights the increasing customer base and its potential positive impact on upcoming results [5]. Overall Expectations - The Zacks Consensus Estimate for revenues from the Consulting segment is $5.1 billion, while the model projects revenues of $5.17 billion [7]. - Total revenues for the March quarter are estimated at $14.45 billion, a slight decline from $14.46 billion in the prior-year quarter, with adjusted earnings per share expected to decrease from $1.68 to $1.42 [8]. Earnings Whispers - The model does not predict an earnings beat for IBM in the first quarter, with an Earnings ESP of -1.68% [9].