International Business Machines (IBM) is set to report its first-quarter earnings on April 22 after the market closes. Wall Street predicts that IBM will generate about $15.6 billion in revenue and post earnings of roughly $1.81 per share, a 13.1% increase from the same quarter last year. Most of the growth is expected to come from IBM’s Software segment, which is its largest, as per the image below.
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Importantly, recent trends support this outlook. In the fourth quarter, IBM’s Software revenue grew by 14% year-over-year to $9.03 billion, driven by strong performance from its data business, which grew 22% thanks to generative AI demand and the watsonx platform. However, there are risks that investors should watch for. Indeed, IBM’s Consulting unit remains a laggard, as it grew by only 3% in the fourth quarter.
Interestingly, though, RBC Capital Markets (RY) believes that IBM could beat expectations due to the ongoing strength of its AI strategy. Indeed, analyst Matthew Swanson recently pointed out that IBM ended last year with a strong fourth quarter, and he expects that momentum to continue into this period. More specifically, RBC sees growth being fueled by solid performance in software and infrastructure, particularly in areas like automation and transaction processing. As a result, RBC kept its Buy rating despite lowering its price target to $330 from $361.
What Do Options Traders Anticipate?
Using TipRanks’ Options tool, we can see what options traders are expecting from the stock immediately after its earnings report. The expected earnings move is determined by calculating the at-the-money straddle of the options closest to expiration after the earnings announcement. If this sounds complicated, don’t worry, the Options tool does this for you. Indeed, it currently says that options traders are expecting a 6.9% move in either direction.
Is IBM a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on IBM stock based on 11 Buys, six Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average IBM price target of $307.75 per share implies 20.2% upside potential. At the same time, TipRanks’ AI Analyst has an Outperform rating and a $279 per share price target.
