Stock price reaches a 10-year high! The AI frenzy has finally reached IBM, and Wall Street is cheering "The Blue Giant Returns"

Supported by strong demand for AI services, IBM's performance in the fourth quarter of 2023 exceeded expectations, with revenue outlook also surpassing expectations. The stock price rose more than 9% on Thursday, reaching a new high in over 10 years. It even reached a peak of over 13% during trading, the highest since June 2013.

Elephant Actively Transforms: Generated AI Business Orders Double in the Fourth Quarter

According to the company's financial report, IBM's fourth-quarter revenue was $17.4 billion, a year-on-year increase of approximately 4.1%, exceeding the market's expected $17.3 billion. Net profit was $3.3 billion, a year-on-year increase of approximately 13.7%. Adjusted EPS was $3.87, surpassing the market's expected $3.79.

IBM CEO Arvind Krishna stated during the conference call that the company's generated AI business (including services such as the Watsonx AI platform) orders doubled in the fourth quarter, helping it achieve approximately 4%-6% revenue growth in 2024 and generate $12 billion in free cash flow.

In 2023, among the tech giants whose stock prices soared due to the AI trend, IBM was one of the laggards. The company's stock price only rose by 16% for the whole year, lagging behind the market's 24% increase.

However, as the company continues to make efforts in the AI business, investors have begun to be satisfied with IBM's transformation.

Prior to the release of the financial report, IBM's stock price had just exceeded a 7% increase for the first month of the year. Since the release of the third-quarter financial report on October 26th, IBM's stock price has risen by over 20%.

Wall Street Cheers for the "Return of the Blue Giant"

After the release of the financial report, eight Wall Street institutions, including Bank of America, JPMorgan Chase, Jefferies, and Evercore, simultaneously raised their target price for IBM.

The analyst team at JPMorgan Chase raised the target stock price from $170 to $190.

The team wrote:

We believe that IBM has not benefited from the valuation gains in artificial intelligence like some of its peers, and the recent multiple expansion trend has generally been lower than the main comparables in our valuation.

Amit Daryanani, an analyst at Evercore ISI, raised the 12-month target price for IBM's stock from $200 to $215, representing a 24% increase from Wednesday's closing price.

In a report titled "Return of the Blue Giant," Daryanani reiterated the rating of IBM as "outperforming the market." He pointed out that the strong revenue guidance for 2024 will help drive the stock price up, and he expects IBM's AI order volume in 2024 to reach $500 million, with two-thirds coming from consulting services. Daryanani wrote:

This growth rate is very fast and should continue to grow in 2024 and beyond.

Our feeling is that IBM is still an undervalued beneficiary of AI and should continue to rise in the coming years.

However, another Wall Street institution, Wedbush, maintains a neutral rating on the stock. Analyst Moshe Katri believes that IBM's revenue guidance for 2024 may not be achievable.

Katri pointed out that the growth of IBM's software business has slowed from 6% in the third quarter to 3% in the fourth quarter. At the same time, the consulting business revenue was $5 billion, lower than the expected $5.1 billion. It was only the better-than-expected performance of the infrastructure business that boosted IBM's overall performance.

Wedbush has set a 12-month target price for IBM at $140, far below the current $190.