IBM is expected to post "solid" third-quarter results amid continued strength in generative artificial intelligence consulting, RBC Capital Markets stated Thursday. The technology giant is scheduled to report results on October 23. RBC projects adjusted earnings at $2.24 a share on revenue of $15.08 billion, while analysts polled by Capital IQ are looking for earnings of $2.22 and revenue of $15.04 billion, respectively. "Peer results would suggest continued strength in consulting, while software traction likely remains the larger catalyst for sentiment improvement," RBC analysts, including Matthew Swanson, articulated in a note to clients.
Despite a 0.6% dip in IBM shares during Thursday afternoon trade, the stock has risen 42% year-to-date, highlighting strong market confidence. In the first half of the year, IBM demonstrated robust performance in software, buoyed by a solid recurring revenue base and "early traction" in generative AI, as noted by Chief Financial Officer James Kavanaugh during an earnings conference call in July.
"Our book of business in generative AI inception-to-date exceeds $2 billion, with approximately three-fourths of it comprising consulting signings displaying strong quarter-over-quarter momentum," Kavanaugh mentioned. RBC focused attention on Red Hat technology, noting that a rebound in this area paused during the second quarter, although IBM has reiterated its outlook for low-double-digit growth, suggesting a potential acceleration in the second half.
"An area of strength has been infrastructure, which has demonstrated a longer tail than expected as we approach a new refresh cycle in 2025," the analysts pointed out. Along with its second-quarter results disclosed in July, IBM expressed expectations of achieving "more than" $12 billion in free cash flow (FCF) in 2024, adjusting previous estimates of around $12 billion.
The analysts from RBC emphasized that sentiment improved significantly throughout the quarter, indicating increasing thematic inbounds alongside the support from free cash flow. Job postings are projected to have surged by 6% sequentially in the third quarter following a substantial 19% decline in the prior quarter.
The analysts remarked, "Despite recent news regarding workforce reductions, this likely signifies a rebalancing that management indicated in earlier quarters." Furthermore, in the fourth quarter to date, job postings have reportedly risen by an additional 3%. RBC has maintained its outperform rating on IBM stock, raising its price target to $250 from $211, reflecting expectations of "improved efficiency and a solidifying macro environment." The current price stands at $232.68, with a change of -1.62, or a percent change of -0.69..