IBM Surges as AI Commitments Double

Free Cash Flow is the market’s new favorite metric

BREAKING NEWS

IBM is hitting the stratosphere in response to a great earnings beat last night. Let’s unpack how the OG tech player is carving out their own AI niche.

WHAT HAPPENED

In short, IBM beat estimates by driving a strong $3.87 EPS from $17.38 billion in revenue. All of IBM’s major business lines generated respectable growth in Q4. However, IBM is getting most of their lift from a massive surge in Free Cash Flow. Management hit $11.2 billion in FCF when the company originally expected $10.5 billion. IBM hasn’t seen operating margins this high since the 20th century. 

PIONEER BUMP

After the year we’ve had with LLMs, it’s hard to remember that IBM is actually one of the main pioneers of machine learning and the AI market thanks to their Watson program. WatsonX is still a leading AI architecture—and IBM actually had their bookings for WatsonX double from Q3 to Q4. While that would still put AI revenue at a few hundred million dollars, the market still loves to see a demand surge that big. 

WHY IT MATTERS

IBM cautioned investors that they expect a lot of volatility in 2024 and can’t anticipate perfectly where demand will go from here. However, IBM is achieving huge productivity gains thanks to internal AI utilization, and therefore the company expects some mild staff restructuring this year. With great revenue growth and the promise of better margins—investors are flooding IBM stock right now. The company gained over 6% in early trading—pushing their stock up 50% since their recent lows last May.