International Business Machines (IBM) stock jumps 4% on earnings

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In a weak market environment on Thursday, International Business Machines (NYSE:IBM) managed to bring some joy to Wall Street with positive momentum following yesterday’s third-quarter earnings beat. While directly positive for IBM stock – which gained 4% in the early afternoon – the performance also reflected continued demand for computing technologies such as software, mainframe systems and hybrid cloud services.

According CNBC, the tech icon generated earnings per share (EPS) of $1.81 on revenue of $14.11 billion. Analysts polled by Refinitiv expected EPS to reach $1.77 on revenue of $13.51 billion. Notably, high-end sales were up 6.5% from a year ago.

What made the earnings so impressive for IBM shares was that the underlying company struggled against currency headwinds. By a Bloomberg report:

Big Blue’s skewed international sales continue to be dampened by a historically strong US dollar. The company said currency fluctuations would reduce its third-quarter revenue by 9 percentage points and reduce annual growth by about 7 percentage points.

Nonetheless, IBM CEO Arvind Krishna noted in a statement that: “With our year-to-date performance, we now expect full-year revenue growth above our model. at an average figure.” In June, IBM said it expected growth at the top end of the model.

Significantly, management also reiterated its July guidance of around $10 billion in free cash flow.

IBM Stock is a surprising tech gem

While suffering an 8.3% year-to-date loss after the Oct. 19 session close doesn’t generally inspire confidence, IBM stock happens to be the hidden gem in the deeply beleaguered tech sector. As Bloomberg noted, during the same period, the iShares Expanded Tech Sector ETF (NYSEARC:IGM) lost 36% of its market value.

Additionally, the earnings report revealed some intriguing details regarding the broader tech space. By Bloomberg:

Although Krishna is betting on IBM’s future growth in the lucrative cloud computing and artificial intelligence market, mainframe sales have helped his infrastructure unit generate a 15% increase in revenue – the division at the fastest growing in the quarter.

Going forward, the various macroeconomic and geopolitical headwinds that have marked the debates this year could come into play. Certainly, Krishna said the energy crisis and runaway inflation in Europe facilitate more cautious conversations. However, the chief executive said the concerns were not yet reflected in the data.

Nonetheless, CFO Jim Kavanaugh said in an interview that “the strong dollar is impacting margins and the company has responded by raising product and advisory prices,” per Bloomberg’s the description. Presumably, then, the next step for IBM shares is whether the underlying company can sustain such mitigations.

As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to Publication guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto helped negotiate major contracts with Fortune Global 500 companies. Over the past several years, he has provided critical and unique insights to investment markets, as well as various other industries including law, construction management and healthcare.

James G. Williams