IBM (NYSE:IBM) recently released its second-quarter results, revealing a combination of both positive and negative outcomes. While the company experienced a revenue miss, it managed to achieve a strong earnings beat. Despite these fluctuations, IBM’s outlook remains steady, signaling a promising trajectory for the remainder of the year. The company anticipates moderate revenue growth, thanks to its consistent performance in software and consulting services, especially in the thriving domains of data and artificial intelligence (AI).
Financial analysts maintain a fair value estimate of $126 per share for IBM, considering its position as a narrow-moat IT services provider. However, they caution that shares are slightly overvalued and suggest exploring more appealing opportunities in the IT services sector, such as Cognizant (CTSH), which boasts a fair value estimate of $91 for the narrow-moat company.
In the second quarter, IBM (NYSE:IBM) reported flat revenue compared to the same period last year, at constant currency, with total revenue amounting to $15.5 billion. The decline in infrastructure revenue, down by 14% year over year at constant currency, weighed down the overall performance. Nonetheless, this dip was expected due to the cyclicality of the mainframe business, which remains a specialty within IBM’s portfolio.
On a brighter note, software and consulting revenue witnessed healthy growth, showing an 8% and 6% increase, respectively, year over year at constant currency. This growth can be attributed to the surge in interest in AI-related solutions. Particularly, data and AI software experienced an impressive 11% year-over-year growth at constant currency, leading the pack among IBM’s software subsegments. However, analysts remain cautious about IBM’s AI ambitions, taking into account previous AI failures, such as the sale of Watson Health in 2022.
Currency fluctuations remained a challenge for IBM, impacting its overall profit. As a result, non-GAAP earnings per share for the quarter stood at $2.18, marking a 6% decrease compared to the previous year.
Despite these challenges, IBM (NYSE:IBM) maintains a positive outlook for its fiscal year 2023. The company expects revenue growth to fall within the 3%-5% range at constant currency and also projects its free cash flow estimate for the year to remain at $10.5 billion, consistent with earlier forecasts.
Featured Image: Unsplash
Author Faith Yakubu 
