IBM shares hit a high as AI optimism fuels 19% rally

One of the oldest companies in tech has been quietly trouncing some of the hottest stocks on Wall Street.

International Business Machines Corp. recently hit its highest since 2013, putting it about 6 percent below an alltime high as investors bet that a turnaround is finally bearing fruit after years of tepid growth and share-price returns. Compared with the Magnificent Seven, IBM’s roughly 19 percent gain this year, including dividends, trails only Nvidia and Meta Platforms Inc.

“IBM has been discounted by the rest of the industry, but it has made a lot of investments in both cloud and AI, and with a strong AI business, we could see growth inflecting higher,” said Jethro Townsend, portfolio manager at Nia Impact Capital. He cites the firm’s cash flow generation and “healthy” dividend yield as factors that provide room for it to re-rate higher.

Much of the year’s advance followed IBM’s results in late January, when it gave a betterthan-expected forecast for both free cash flow and revenue and said it was seeing growing demand for its AI products. The company has also cut jobs and expects to pause hiring for roles that could be replaced with AI, which is seen as a potential tailwind for margins.

The surge is a recent phenomenon, however; while Apple has lagged this year, its five-year total return of 275 percent is much stronger than IBM’s 82 percent gain over the same period.

Wall Street remains divided, with bulls outnumbered by skeptics and bears, according to data compiled by Bloomberg. While it looks cheaper relative to most big-tech stocks, IBM’s multiple of 19 times estimated earnings is near its highest in 20 years. Furthermore, the stock is 4 percent over the average price target, among the worst return potentials among components of the S&P 500 tech index.