International Business Machines Corporation (NYSE: IBM) shares have been having one of their most exciting years in a long, long time. After a lengthy stretch of mostly sideways movement from 2015 through last summer, the stock finally broke out and started heading north. IBM is up over 35% this year alone, and its shares have been reaching record highs as recently as this month. For a company usually associated with lackluster returns, this year’s performance has flipped the script. And for several good reasons, there’s a sense that the bullish momentum could continue well into 2025.
Right now, though, IBM shares are experiencing a dip. Following last week’s earnings report, they’ve dropped nearly 8%, presenting a golden opportunity for those on the sidelines who believe this rally has legs. Let’s jump in and take a closer look.
Strong Momentum
The New York-headquartered tech giant, which has a market cap of around $200 billion, has a unique position in the tech landscape, bridging enterprise software and consulting services. Last week’s Q3 report saw solid performance for both units, though not without some concerns. The company beat analyst expectations on earnings per share, while its revenue came in slightly below projections.
The primary revenue miss stemmed from IBM’s consulting division, where weaker demand impacted performance. However, it’s worth noting that the software division, which holds some of IBM’s highest margin opportunities, reported impressive growth.
CEO Arvind Krishna zoned in on this when he highlighted IBM’s momentum in the artificial intelligence (AI) space, stating, “We continue to see great momentum in AI as our models are trusted, fit-for-purpose, and lower cost, with performance leadership. Our generative AI book of business now stands at more than $3 billion, up more than $1 billion quarter to quarter.”
Bullish Analyst Updates
Backing up the bullish outlook from the leadership team was the likes of The Royal Bank of Canada, who reiterated its Outperform rating on IBM last week. This echoed similarly bullish updates from the Stifel Nicolaus and Bank of America teams earlier this month. They’re unanimous in their optimism about IBM’s growing AI footprint and the potential in its high-margin segments.
All 3 firms are backing the stock with price targets around the $250 mark, pointing to a targeted upside of nearly 20% from current levels. Needless to say, this would also have the stock trading at a fresh all-time high and well above the $237 record it set earlier this month.
Potential Concerns
With all that being said, there are a few concerns to note. IBM’s price-to-earnings (P/E) ratio of 31 is a bit frothy compared to other tech stocks. This, combined with a revenue miss last week, might give some investors pause for thought.
There’s also the fact that the Morgan Stanley, BMO Capital Markets, and Jefferies teams all reiterated their Neutral ratings on the stock last week following the earnings announcement. However, even their reduced price targets are well above where IBM is set to open on Monday.
Getting Involved
For those of us considering getting involved and taking advantage of the post-earnings dip, the stock’s technical setup is another key reason to be excited. Having been above 80 just 2 weeks ago, IBM’s Relative Strength Index (RSI) is currently at 35, which suggests the stock is on the verge of being extremely oversold.
This adds to the sense that there’s a bargain to be had right now, and IBM shares have significant room to run. Investors should watch for shares to begin consolidating after last week’s dip, with a close above $217 suggesting the rally is back on.
