IBM Is A Leader In AI: Credit Suisse Analyst Praises Revenue Guidance, M&A Focus

Credit Suisse analyst Shannon Cross reiterates International Business Machines Corp IBM with an Outperform and a $162 price target.

IBM is likely to report second-quarter results for 2023 after the market closes on July 19.

Cross maintains her revenue estimate of $15.58 billion (flat Y/Y) and non-GAAP EPS of $2.02, which aligns with consensus. Due to its foundational models and significant consulting resources, she continues to believe IBM is well-positioned to be a leader in AI.

The analyst expects IBM to maintain 2023 revenue guidance of up 3% to up 5% (FX estimated to be neutral), given no significant change in IT spending since April. She maintained her 2023 revenue estimate of $62.12 billion (up 3% Y/Y).

The analyst will look for more details on the contribution from Apptio, which is likely to close sometime during the second half of 2023. 

In addition to Apptio, IBM announced the acquisitions of Ahana Cloud (software) and Agyla SAS (consulting) during the quarter. 

The analyst expects the company to remain acquisitive, supported by ~$13 billion cash (excluding the $4.6 billion for Apptio). 

In addition to the launch of watsonx, during the last few months, IBM reported a handful of AI customer partnerships and unveiled a generative AI Center of Excellence (COE). 

Over 100 clients have interacted with IBM through the COE, which has more than 1,000 generative AI specialists. 

Near-term, the analyst believes the Consulting unit will lead most AI engagements (she estimates up 7% Y/Y in 2Q23 and 2023). 

Also, Apptio has collected data on ~$450 billion of customer IT spending that she thinks can be applied to IBM’s foundational models. 

Cross modeled 3Q23 revenue of $14.64 billion (up 4% Y/Y) and non-GAAP EPS of $2.18, versus consensus of $14.86 billion and $2.14, respectively. For 2023, the analyst estimates revenue up 3% Y/Y to $62.12 billion with non-GAAP EPS of $9.48, versus consensus of $62.27 billion and $9.43, respectively. 

Cross also maintained a 2024 revenue estimate of $65.01 billion but tweaked non-GAAP EPS to $10.20 from $10.28. 

Price Action: IBM shares traded higher by 0.75% at $133.93 on the last check Tuesday.