IBM surge after Q4 Earning, ATH comes with AI promotion

$IBM(IBM)$ rose 9% after Wednesday's after-hours announcement of its 24Q4 earnings, bringing the stock to a new all-time high and another company that benefited from the AI surge this quarter.

In terms of market feedback, the sentiment given by the market is quite positive due to the Q4 earnings beat and upbeat guidance for FY25.Since the company's valuation level (around 22x forward P/E) is not too high in the AI sector, the market is still willing to pay for it regardless of its revenue growth rate.

Investment highlights

1. Redhat acquisition may be the best decision in history.

   1. Double-digit software revenue growth in Q4 (+10% YoY to $7.92bn), driven by further acceleration in Redhat, and AI business orders have exceeded $5bn to date, up nearly $2bn YoY;

   2. Guidance for 2025: revenue growth of 5% (+1% in 24Q4), above expectations of 4.8%; free cash flow expected to be about $13.5 billion, above expectations of $12.92 billion;

2. IBM's AI, with its major emphasis on reasoning, has actually benefited from this DeepSeek-induced boom.

   1. Its Granite 3.0 model, introduced to focus on large-scale enterprise AI applications, emphasizes building and fine-tuning purpose-built AI base models from internal enterprise data, an approach that enables AI solutions to more efficiently meet specific business needs rather than relying on general-purpose, large-language models;

   2. IBM has achieved a 40-fold improvement in inference performance, significantly reducing the cost of implementation;

   3. Its AI technology is widely used in process automation, problem solving and information retrieval scenarios to alleviate the repetitive work of employees and improve overall efficiency.For example, the layout of IBM Watson in the medical field has likewise made breakthroughs, especially in tumor treatment and chronic disease management.

It is important to note:

• The vast majority of IBM's incremental growth in AI orders is in the low margin consulting business, and for now, the hourly rub will give the market something to get excited about for this tiny growth, more than IBM's positioning for performance;

• Overall, the company is targeting +5% revenue growth in 2025, far less than other AI types.