What to watch from AI and cloud with third-quarter earnings due today

With a 70% rally over the last 12 months IBM (IBM) shares are trading at record levels ahead of a key third-quarter report late Wednesday.

Shares of the more than century-old tech giant known as Big Blue rallied starting late last year, helped by enthusiasm for AI and improvements in the company's revenue growth and free cash flow generation.

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On the stock market today, IBM shares have recently fallen slightly to 231.24. Shares closed slightly higher on Tuesday following an upbeat earnings report from the corporate technology rival JUICE (JUICE)

IBM shares Q3 in numbers

Meanwhile, several Wall Street analysts raised their estimates for IBM stock ahead of the Q3 report.

Analysts surveyed by FactSet expect IBM to report adjusted profit of $2.22 per share for the ending September quarter, up 24% from the year-earlier quarter. Analysts expect revenue to rise 2.2% to $15.08 billion.

BofA Securities analyst Wamsi Mohan reiterated his buy rating on IBM in a recent note to clients and increased his price target for the stock from 209 to 250.

Mohan said IBM stock's outperformance was due to optimism about software business growth as well as the upside potential of companies reaching a mainframe upgrade cycle in 2025.

“Generative AI ($2 billion in business creation to date) is a significant opportunity for both consulting (~75%) and software (~25%),” Mohan wrote. “Headwinds include weaker advice given the decline in discretionary projects and overall weak macro.”

Mohan expects IBM to report results in line with profit and revenue expectations.

What could drive IBM shares higher?

Meanwhile, analysts at Jefferies have a neutral hold rating on IBM shares. But Jefferies analyst Brent Thill raised his price target on IBM from 200 to 245 in a note to clients on Monday.

“As IBM enters the printing industry, expectations will rise, particularly around software and AI,” Thill wrote. “From the top down, IBM remains a slow-moving ship weighed down by consulting/infrastructure.”

In order for the stock to continue to rise, according to Thill, IBM's software division must continue to perform above average, led by its cloud division Red Hat. Consulting sales also need to increase again, he wrote, while the contribution of AI to sales needs to accelerate.

Overall, analysts remain mixed on IBM shares despite the recent rally. According to FactSet, 10 of the 22 analysts who follow IBM rate the company a “buy” or equivalent. Seven analysts are neutral and five recommend selling IBM shares.

IBM Stock: Extended Past Buy Point

Meanwhile, IBM stock has risen past the 196.26 cup with handle buy point identified by MarketSurge. Shares broke through that level on August 21 and have posted steady gains in the weeks since.

In early September, IBM shares posted their first record close in more than a decade. The tech giant had a market cap of $213 billion as of early Wednesday.

According to IBD Stock Checkup, the company's stock's Relative Strength Rating is 90 out of a possible 99, indicating that IBM stock has outperformed 90% of the market over the past 12 months.

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