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Why IBM Stock Jumped Today

What happened

Shares of IBM (NYSE:IBM) climbed 5.7% on Tuesday after the technology giant’s fourth-quarter report gave investors hope that its growth strategy was taking hold.

So what

IBM’s revenue from continuing operations rose 6.5% year over year to $16.7 billion. That was well above Wall Street’s estimates, which had called for sales of just under $16 billion. 

The gains were driven by an 8.2% increase in IBM’s software revenue, to $7.3 billion, and a 13.1% jump in its consulting revenue, to $4.7 billion. The company’s hybrid cloud operations, which help businesses integrate their private computing resources with public cloud services, enjoyed particularly strong growth. Sales in this segment surged 16% to $6.2 billion.

A person is looking at a cloud-shaped object.

Image source: Getty Images.

All told, IBM’s adjusted earnings per share checked in at $3.35. That, too, surpassed the consensus estimate. Analysts had expected adjusted per-share profits of $3.30. 

Moreover, IBM continues to gush cash. Following the divestiture of its Kyndryl managed IT services business, the tech titan expects to generate more than $10 billion in annual free cash flow. IBM is using this cash to pay down debt, reward shareholders with a hefty 4.8% dividend yield, and fund its growth initiatives.

“In 2021, we continued to invest for the future by increasing R&D spending, expanding our ecosystem, and acquiring 15 companies to strengthen our hybrid cloud and AI capabilities,” chief financial officer James Kavanaugh said in a press release.

Now what

IBM’s leadership team expects demand for its cloud services to remain strong in the coming year as more businesses seek to automate their operations and harness the power of artificial intelligence (AI). “Our fourth-quarter results give us confidence in our ability to deliver our objectives of sustained mid-single-digit revenue growth and strong free cash flow in 2022,” CEO Arvind Krishna said.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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