IBM Stock Rallies on Strong Earnings

International Business Machines Corporation (NYSE: IBM) has given a sign to its shareholders that the multinational tech giant may be turning things back around at last.

For the first time, IBM has experienced a revenue boost in cognitive solutions, which is a key unit. The tech corporation is considering that the cognitive solutions segment, including the artificial intelligence platform dubbed Watson is important for IBM’s future growth.

The results may indicate that the company’s Chief Executive Officer Ginni Rometty is doing a good job in fulfilling her promise of shifting the software and service offerings to match the increasing appetite of clients for cloud-based solutions. All in all, the company’s sales have plunged for 17 consecutive quarters, and the margins have also narrowed.

According to the Edward Jones & Co analyst Mr. Bill Kreher, the earnings results of IBM “underscore that the company is beginning to find an inflection point.”

“We may begin to see the company grow as a whole as soon as next year,” the analyst further added.

The sales for the second quarter of fiscal year 2016 edged up by 3.5 percent to hit $4.7 billion in the cognitive solutions segment, including security software and analytics products. This event marks the first time since the multinational tech corporation reorganized its units that the cognitive solutions group has reported an increase in revenues, after slumping during the past 5 consecutive quarters. The IBM Chief Financial Officer Mr. Martin Schroeter emphasized that Cognos and Watson products are the major catalysts for the revenue boost.

In extended trading in New York, the stock of IBM rallied—the first favorable reaction from investors towards an earnings report in 4 quarters. Moreover, the tech giant’s stock surged by up to 3.8 percent after ending the session at $159.86.

In order to sustain this bullish momentum, the tech corporation must be able to prove that it can reach the anticipations for its full-year earnings estimate of at least $13.50 per share. This means that as much as 60 percent of the company’s profit will have to come from the second half of the current year.

During the first half of 2016, the tech giant spent $5.4 billion on deals, 11 of which are closed. Moreover, acquisitions contributed a 2 percentage point increase in revenue during this quarter and is anticipated to contribute more to the top line during the present year’s second half, stated Schroeter during the recent earnings call.

According to Schroeter, the sales growth in the cognitive solutions segment was also supported by the deals. The tech titan incorporates the products from the acquisition deals into the services and software that it sells to its clients. Schroeter said in an interview that this is the reason the acquisitions have aided multiple segments of IBM.

According to Kreher, “IBM has made some prudent investments, and now it appears they’re beginning to pay off.”

“It certainly does ramp up expectations.”

As of 6:18 AM GMT -4 on July 19, IBM shares are changing hands at $159.86, up by 0.06 percent or 0.09.

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