On Thursday morning, International Business Machines (IBM) experienced a significant stock boost, rising 13.6% by 11:10 a.m., following the release of its fourth-quarter earnings report. The tech giant surpassed market expectations in both sales and earnings for the fiscal year ending 2024. Analysts had projected an adjusted profit of $3.78 per share on revenues of $17.54 billion; however, IBM reported an adjusted profit of $3.92 per share with total sales reaching $17.56 billion. Although growth was modest, IBM's leadership emphasized positive trends in software revenue and its expanding artificial intelligence (AI) business.
The company's performance in the fourth quarter showcased mixed results. While IBM exceeded forecasts, overall sales grew by just 1%, and full-year sales increased only 1.5%. According to generally accepted accounting principles (GAAP), quarterly earnings declined 13% year-over-year to $3.09 per share, and annual GAAP earnings fell 21% to $6.43 per share. Despite these challenges, CEO Arvind Krishna highlighted double-digit growth in software revenue and noted that IBM's generative AI business has now reached over $5 billion since inception, marking a nearly $2 billion increase from the previous quarter.
IBM's focus on AI continues to be a key narrative for investors. Amid concerns about competitors like DeepSeek, IBM is positioning itself as a leader in artificial intelligence. The company's ability to generate substantial free cash flow—$12.7 billion in 2024, more than twice its reported GAAP net income—further strengthens this position. Profit margins are also improving, with operating profit margin growing by 50 basis points in the fourth quarter and 130 basis points for the full year, based on non-GAAP measurements.
Looking ahead, IBM's management is optimistic about future growth. The company expects to achieve at least a 5% increase in revenue this year and anticipates modest growth in free cash flow to $13.5 billion. With a market capitalization of $239.5 billion, IBM trades at approximately 17.7 times its expected free cash flow for the coming year. While some may question whether this valuation is sufficiently attractive given the modest growth projections, IBM's strong cash flow generation and strategic focus on AI suggest that the company remains a compelling investment opportunity in the tech sector.