Over the past month, financial markets have witnessed a remarkable surge, with significant contributions from the titans of the tech industry such as NVIDIA, Meta Platforms, Microsoft, and rather unexpectedly, International Business Machines Corp. (IBM). Indeed, IBM has found itself in the limelight, boasting an impressive 10-day run of consecutive gains.
This upward trajectory, however, is not merely a fleeting phenomenon. Over an extended period exceeding a year, IBM’s share value has experienced a meteoric rise, more than doubling since the onset of 2024 and marking a 28% increase since the beginning of the year. This begs the question: What factors are propelling IBM’s remarkable rally, and is there potential for this growth to persist?
When examining IBM’s strategic product roadmap, recent financial achievements, and forward-looking revenue projections, it becomes evident that the corporation may yet have surprises in store, potentially continuing to outpace expectations into 2025.
Drawing parallels to the euphoria of 1999 during the Dot-Com Bubble, IBM’s current resurgence stirs a sense of nostalgia while distinctly setting itself apart through substantive technological advancements, particularly in the realms of Artificial Intelligence (AI) and Quantum Computing. This resurgence relies not on speculative frenzy but on tangible technological advancements and strategic initiatives.
IBM has boldly announced its intention to construct the world’s inaugural large-scale quantum supercomputer that is fault-tolerant, dubbed the IBM Quantum Starling, slated for completion by 2029. The Quantum Starling is anticipated to possess operational capabilities 20,000 times that of today’s quantum systems, heralding a new era of computational power. Such an advancement promises broad-spectrum benefits, from the acceleration of new pharmaceutical discoveries to the optimization of logistics and resource identification. The meticulously crafted roadmap towards this goal includes critical milestones: the Quantum Loom in 2025 to test architectural components with the Nighthawk processor, followed by the Quantum Kookaburra in 2026 integrating quantum memory and logic, scaling up to the Quantum Cockatoo in 2027, and eventually upgrading to the Starling processor in 2028. The culmination of this journey, the launch of the Bluejay processor in 2033, is set to amplify quantum operations beyond a billion, showcasing IBM’s commitment to revolutionizing the computational landscape.
Parallel to its quantum computing endeavors, IBM has made significant strides in the artificial intelligence sector, particularly with its focus on agentic AI. This form of AI, tailored for large corporations and institutions, allows for the efficient management of workflows and proprietary data within the confines of organizational ecosystems. One such implementation is the Granite AI model on the Watsonx platform, designed as a ‘small language model’ for rigorous data governance, utilizing a wealth of internal communications and documents. By concentrating on enterprise applications, IBM facilitates enhanced accuracy and detail in information retrieval, catering to the specific needs of industries including law and finance. The success of this initiative is reflected in the software sales figures, bolstering IBM’s financial standing with over $6.3 billion generated in Q1 2025 alone, further supported by an 80% recurring revenue stream through stalwarts like Red Hat. This, coupled with strategic acquisitions such as HashiCorp, underlines IBM’s unwavering focus on innovation and its anticipation of future industry needs.
IBM’s steadfast performance is further validated by its latest earnings report, surpassing expectations with robust revenue and earnings per share figures. The announcement of a $2 billion free cash flow, a record for IBM, along with improved margins attributed to AI workflow automation and supply chain optimization, solidifies the company’s trajectory of growth. CEO Arvind Krishna’s reiteration of the full-year guidance projections accentuates the company’s confidence in maintaining this momentum. Amplified by several prominent analyst upgrades, IBM’s stock is riding a wave of optimism, underscored by the ambitious projections tied to its quantum computing and AI ventures.
However, amid the bullish outlook, a note of caution is advised as analysis of IBM’s stock performance indicates potential overextension. The Relative Strength Index (RSI) suggests the stock may be entering overbought territory, hinting at a possible short-term pullback. This serves as a reminder for potential investors to remain vigilant, seeking optimal entry points that may emerge following any market corrections.
In summary, while IBM’s recent ascent in the stock market has captured the attention of investors worldwide, it is the underlying advancements in technology and strategic positioning that provide a compelling narrative for sustained growth. With groundbreaking projects like the Quantum Starling on the horizon and significant strides in AI for enterprise, IBM is not only revisiting its former glory days but is also paving a new path towards technological preeminence. As the company proceeds along its ambitious roadmap, the technology and investment communities alike watch with bated breath, eager to witness the unfolding of this remarkable journey into the future of computing.
Markets have staged a fierce rally in the last month, led by typical tech giants like NVIDIA (NASDAQ:), Meta Platforms (NASDAQ:), Microsoft (NASDAQ:), and… wait, is that IBM’s music? Yes, International Business Machines Corp. (NYSE:) has been one of the biggest winners lately and is riding a 10-day winning streak.
However, this rally has actually been ongoing for more than a year. IBM shares have more than doubled in value since the start of 2024, including a 28% year-to-date advance. What’s triggering this impressive rally, and can the gains continue?
Considering its product roadmap, recent earnings, and forward guidance projections, IBM might not be done proving the doubters wrong in 2025.
Party Like It’s 1999: AI and Quantum Computing Fueling IBM Upside
It’s time to bust out the Prince albums, because IBM is experiencing a resurgence that has investors reminiscing about the Dot-Com Bubble days. But unlike many of its Dot-Com contemporaries, IBM has the tailwinds to sustain this surge in the years ahead.
IBM has laid out plans to build the world’s first large-scale “fault-tolerant” quantum supercomputer by 2029. Called the IBM Quantum Starling, the computer is projected to have 20,000 times the operational power of current quantum systems. The computational power of this magnitude could significantly enhance development and productivity across various sectors, including discovering new pharmaceuticals, identifying resources and materials, and optimizing logistics. The roadmap is thorough with clear milestones, such as:
- 2025: Quantum Loom to test architectural components with the Nighthawk processor
- 2026: Quantum Kookaburra combining quantum memory and logic
- 2027: Quantum Cockatoo for scaling the Kookaburra models with a universal adaptor
- 2028: Upgrade the Nighthawk processor (15K quantum circuit gates) to Starling (100M gates)
The Starling launch in 2029 will enable the system to process 100 million quantum operations, preceding the launch of a new processor called Bluejay in 2033. If the roadmap proceeds as planned, the Bluejay processor will enable over one billion quantum operations, representing an exponential increase in processing power within just a few short years.
AI for Enterprises
IBM has also found its niche in the artificial intelligence sector through segments it calls agentic AI. Agentic AI is designed to help large companies and institutions manage workflows and proprietary data within their own confines.
For example, the Granite AI model on the Watsonx platform has been described as a ‘small language model’ since it’s designed for data governance using company materials, documents, emails, and other in-house communications.
By tailoring the AI to enterprise applications, clients can obtain more accurate and detailed information as the datasets come from industry-specific sources.
Think specific legal opinions for a law firm, or balance sheets and cash flow statements for a financial analyst. The Watsonx platform also supports multiple large language models (LLMs), such as Meta’s Llama-2. The AI segment continues to drive profits, with software sales totaling over $6.3 billion in Q1 2025.
The figure represented a 9% year-over-year (YOY) increase supported by 80% recurring revenue through stalwart products like Red Hat. IBM’s addition of HashiCorp (NASDAQ:) to grow its automation portfolio shows that it isn’t resting on its laurels here either.
Strong Earnings and Robust Guidance Extend the Rally
The company reported earnings on April 23 and posted a top and bottom-line beat. The EPS number of $1.60 beat analysts’ expected consensus of $1.42, and revenue of $14.54 billion came in above the expected $14.41 billion. IBM also generated $2 billion in free cash flow, a record for the firm.
The report also noted improving margins, as IBM was able to add 240 basis points to its Q1 EBITDA margin thanks to AI workflow automation and the optimization of supply chains. CEO Arvind Krishna reaffirmed the company’s full-year guidance projections of 5% revenue growth and $13.5 billion in free cash flow generation.
Red Hat’s growth is expected to accelerate to the mid-teens, and the company has issued a slight increase in its Q2 revenue projections to a range of $16.4 billion to $16.8 billion, up from its previous estimate of $16.3 billion.
The stock has received several prominent analyst upgrades since the Q1 earnings release, including three in the last few weeks as the company began laying out its quantum computing roadmap.
Wedbush reiterated its Buy rating for the stock with a $300 price target on May 7. Royal Bank of Canada followed with a $285 price target on May 15 and Bank of America with a $290 price target on June 9. The average of these three new targets is $291.67, which indicates an upside of more than 7% from current levels.
IBM’s Technicals Point to Overextension
Not every signal on IBM is bullish. The daily stock chart indicates that the rally may be getting overextended in the short term, and a more favorable entry point could be available in the days or weeks ahead. The Relative Strength Index (RSI) has floated up into Overbought territory at 74, signalling that a short pullback could be imminent.
