The rise of artificial intelligence (AI) in 2023 sent many tech stocks soaring. As a result, a plethora of businesses touted AI capabilities. Sifting through them to figure out which are worthwhile long-term investments can prove challenging.
But one blue-chip stock possesses so many compelling qualities, it makes sense to pick up shares and hold on to them through 2024 and beyond. That stock is tech stalwart International Business Machines (IBM +1.93%).
It may be a good time to buy IBM stock, and not because a new year is upon us. At the time of this writing, Big Blue's share price has retreated a bit from its 52-week high of $166.34, reached on December 12. And now, consider these other factors that make IBM a good long-term investment.
NYSE: IBM
Key Data Points
IBM's growth engines
Before Arvind Krishna, who used to oversee IBM's cloud computing and AI division, rose to the CEO spot in 2020, Big Blue was struggling under the weight of a vast organization with too many irons in the fire. Mr. Krishna focused the company on AI and cloud computing, while divesting businesses that no longer made sense for the company.
Today's IBM is leaner, and now on a growth trajectory thanks to these moves. The company's third-quarter revenue jumped 5% year over year to $14.8 billion as a number of areas across its businesses experienced growth.
IBM's data and AI division saw revenue rise 6% year over year, while its Red Hat cloud computing solution increased by 9% as organizations continue to migrate IT operations to the cloud.
IBM also possesses a substantial consulting business, which grew revenue 6% year over year to $5 billion. IBM's clients are looking for help integrating AI capabilities into their businesses, which led to growth in Big Blue's consulting division. As more businesses seek to to capitalize on the advent of AI, IBM's consulting capabilities are likely to prosper.
IBM's AI expertise
IBM's work with AI technology stretches back to the 1950s. Its latest AI platform, watsonx, debuted in July. This platform is helping IBM clients achieve business improvements such as automating mundane operational tasks, improving customer service, and modernizing the software code used in their organizations. AI clients include Samsung Electronics and NASA.
Big Blue is continuously enhancing its AI platform. For example, on December 18, IBM announced its acquisition of two companies from Software AG, which will help watsonx integrate with a customer's systems and ingest the mountains of data needed for accurate AI decision-making.
The company is also working in the emerging field of quantum computing, which offers key technology in AI's evolution. These machines use quantum physics to perform calculations multi-dimensionally rather than with the sequential approach used by today's computers.
This allows quantum machines to perform calculations too complex for even the most powerful supercomputers on the planet, and that kind of potency can substantially advance AI's capabilities. In fact, customers today can use watsonx to perform quantum code programming. Customers using IBM's quantum computing technology include the U.S. government and Harvard University.
IBM's compelling value
Although IBM competes against other well-known tech firms, such as Microsoft, in the AI and cloud computing industries, these markets are large enough to support multiple players. Moreover, IBM's revenue growth shows it is successfully capturing its share of customers.
And in contemplating an investment in IBM, consider Big Blue's stock valuation versus rival Microsoft's. IBM's price-to-earnings ratio (P/E ratio) over the trailing 12 months is just under 22, whereas Microsoft's P/E multiple of 36 is significantly higher, suggesting IBM is the better value.
And its value to investors doesn't stop there. IBM offers a robust dividend, currently yielding over 4%, which can provide you with years of passive income. The company has paid dividends since 1916 and boasts an impressive streak of dividend increases spanning 28 consecutive years.
IBM's growing business, driven by its ever-evolving AI and cloud computing technologies, its attractive dividend, and its reasonable valuation combine to make this blue-chip stock a solid investment for 2024 and beyond.
