Source: PaxForex Premium Analytics Portal, Fundamental Insight
IBM could be on the verge of a resurgence. After surpassing its previous all-time high from 2013, the company has drawn renewed interest from investors due to its pivot toward cloud computing and artificial intelligence (AI). This transformation has boosted IBM’s market capitalization to approximately $205 billion, and some speculate whether it could potentially become a trillion-dollar company by 2030. While such projections are uncertain, it’s worth considering what would be required to reach that milestone.
To achieve a $1 trillion market cap within six years, IBM's stock would need to grow by an average of 30% annually. A decade ago, such a feat seemed unlikely, but IBM's recent evolution has changed the narrative. The transformation began with the acquisition of Red Hat, spearheaded by Arvind Krishna, who later became CEO. This $34 billion deal initially raised concerns about IBM’s growing debt, but the strategy has paid off as IBM continues to expand its cloud business, holding a 2% market share in the cloud infrastructure sector, according to Synergy Research Group.
Although 2% may seem small, the global cloud market is expected to reach $2.4 trillion by 2030. Maintaining this share could lead to significant revenue growth for IBM. Additionally, IBM has positioned itself as a key player in the generative AI market with its watsonx platform. In just a year, watsonx has amassed over $2 billion in business, and with the generative AI market projected to grow to $109 billion by 2030, IBM could see further upside.
Despite these positive developments, IBM remains more than just a cloud and AI company. Over half of its revenue still comes from consulting and infrastructure, though software remains its largest segment. However, growth in these areas has been relatively modest, with overall revenue increasing by just 2% in the first half of 2024.
IBM's net income, boosted by a one-time tax benefit, increased by 37% during the first half of 2024. However, this benefit is unlikely to recur, which could impact future profitability. While IBM has raised its revenue growth forecast to mid-single digits, this may not be enough to drive rapid stock price gains, especially with its price-to-earnings (P/E) ratio now in the 25 range.
Given its current financial trajectory, it seems unlikely that IBM will reach a $1 trillion market cap in the next six years. Nevertheless, IBM is experiencing a comeback, bolstered by its cloud and AI advancements. While growth may remain slower compared to industry peers, IBM's evolution into a modern tech company should not be overlooked. However, investors should temper expectations and aim for more modest gains in the near term.
As long as the price is above 225.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 234.14
- Take Profit 1: 245.00
- Take Profit 2: 255.00
Alternative scenario:
If the level of 225.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 225.00
- Take Profit 1: 220.00
- Take Profit 2: 215.00
