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• IBM stock price is nearing its all-time high after earnings.
• The company’s software business grew by 10% in Q4.
• There are concerns that the company is highly overvalued.

The IBM stock price is loitering near its all-time high as demand for its AI solutions continues rising. It was trading at $230 on Thursday, a few points below the all-time high of $240, and about 27% higher than where it was on the same day in 2024. So, is IBM a good stock to buy and hold?

IBM turnaround continues
 

IBM, the giant technology company, has performed well in the past few years. Its stock has soared by over 225% from its lowest level in 2020. 

This is a good performance for a company that struggled for years, especially under Virginia Rometty. 

Arvind Krishner, who became CEO in 2020, has worked hard to transform the company into a simpler and higher-margin firm. His biggest action was the Kyndryl spin-off, in which IBM separated the business into a separate entity. Kyndryl now offers IT infrastructure, networking, and cloud services. 

Separating Kyndryl was an important thing for IBM because it got rid of a large, low-margin business with over 80,000 employees. 

IBM’s business has done well, with its revenues soaring from $54 billion in 2020 to over $61 billion in 2023 and $62.8 billion in 2024. This growth happened even as its market share in the cloud computing and AI industries remained lower than top giants like Microsoft and Amazon. 

IBM earnings report
 

The most recent catalyst for the IBM stock price was its financial results. IBM’s fourth-quarter revenue rose slightly to $17.6 billion. 

Most of its growth came from its software division, whose revenue jumped by 10% due to AI demand. This growth helped offset the decline in its consulting and infrastructure business, which dropped by 1% and 4%, respectively.

IBM’s software business is comprised of its solutions like Red Hat, automation, data & AI, and security. Red Hat is an important part of its business since it acquired it for over $34 billion in 2018. 

Management expects IBM’s business to continue doing well this year. It expects revenue growth to be about 5% and free cash flow to be $13.5 billion. 

IBM’s guidance was better than what analysts were expecting. The average revenue estimate among 18 analysts was its annual revenue to be $65.45 billion. It will then make $68 billion in 2026. 

Is IBM overvalued?
 

A key concern is that IBM seems relatively overvalued. The forward P/E ratio is 31, a few points above the sector median figure of 30. Its forward EV-to-EBITDA multiple is 16, also higher than the sector median of 15.

IBM’s P/E multiple is also higher than Google’s, which has higher growth and margin metrics. IBM’s growth is less than 5%, while Google has double-digit growth and margins. Its net income margin is 27% compared to IBM’s 10.2%.

IBM is also much behind in some of the fastest-growing industries like AI and cloud computing. Its cloud market share remains in the single digits.

IBM stock price analysis
 

IBM chart by TradingView

The weekly chart shows that the IBM share price peaked at $240 in 2024. It has remained above all moving averages, a highly positive thing. However, the stock has also formed a rising broadening wedge, comprising of two rising and diverging trendlines. A wedge often leads to a strong bearish breakdown. 

The Relative Strength Index (RSI) and the MACD have also formed a bearish divergence pattern. A small head and shoulders pattern has also emerged. Therefore, the IBM stock price will likely retreat later this year. If this happens, the next point to watch will be at $200. 

The caveat here is that these patterns have formed on the weekly chart, meaning that the bearish breakdown may take longer to happen.

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