Buy the Dip in IBM Stock After Q1 Earnings?

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By Ronald Tech

IBM’s IBM stock fell 6% in today’s trading session despite beating its first-quarter expectations after-market hours on Wednesday and maintaining its full-year revenue guidance.

That said, let’s see if the post-earnings selloff is a buying opportunity, considering IBM stock is still up +4% year to date and has impressively outperformed many of its tech peers, with the Nasdaq down 11% in 2025.

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IBM’s Favorable Q1 Results

Having a focused strategy around hybrid cloud and AI, IBM CEO Arvind Krishna stated the company is off to a strong start to the year, driven by solid revenue growth, profitability, and cash flow generation.

IBM’s Q1 sales came in at $14.54 billion, eclipsing estimates of $14.44 billion and rising from $14.46 billion in the comparative quarter. On the bottom line, Q1 EPS of $1.60 was down from $1.68 a year ago but beat expectations of $1.42 per share by 12%. Furthermore, IBM generated a multi-year high for Q1 free cash flow at $2 billion.

Notably, IBM has exceeded the Zacks EPS Consensus for nine consecutive quarters with an average earnings surprise of 7.9% in its last four quarterly reports.

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IBM Maintains its Full-Year Guidance

Reassuringly, IBM maintained its full-year guidance for accelerating revenue growth of 5% or more, which came in above projections of $65.09 billion or roughly 4% growth. Based on Zacks estimates, IBM’s top line is forecasted to expand another 5% next year to $68.73 billion. 

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IBM also maintained its full-year free cash flow guidance of $13.5 billion, which would be a slight uptick from $12.95 billion in 2024.

See also  Dissecting Tesla's Financial Health and Ark Invest's Ambitious ForecastThe Volatile Road Ahead for Tesla

Tesla, often likened to a high-speed electric car racing down the stock market highway, has had a series of abrupt turns and bumps in its financial journey. While Cathie Wood's Ark Invest projects a massive 990% upside for Tesla stock, the reality of the company's actual financial performance paints a contrasting picture.

Tesla's Uphill Battle: The Challenge of Declining Sales

Despite Tesla's record-breaking delivery numbers in 2023, the electric vehicle giant faces an uphill battle with decelerating sales growth. With Musk's optimistic vision of upping EV production by 50% annually dwindling, Tesla's deliveries saw a 6.5% decrease in the first half of 2024. The company's gross profit margin plummeted to a meager 14.6%, a far cry from its former glory above 30%.

The global electric vehicle market is experiencing a downturn, evident in Europe's 44% drop in EV sales. This slump in demand, coupled with Tesla's struggle to match competitors on pricing, threatens its market position once more affordable EV models hit the scene.

Tesla's FSD Lifeline: The Crux of Ark's Bold Prediction

Ark Invest places its bets on Tesla's Full Self-Driving (FSD) technology, heralding it as the cornerstone of the company's potential resurrection. Yet, with FSD yet to gain approval for widespread use on U.S. roads, Tesla's revenue projections for 2029 appear overly optimistic. Musk's vision of a profitable robotaxi fleet and potential FSD licensing deals with other automakers carry significant uncertainties.

The Reality Check: Challenges Abound for Tesla's Future

Ark's lofty revenue forecasts, bullish on the back of Tesla's FSD capabilities, could prove too ambitious given the current market realities. Tesla's decreasing gross profit margin and declining EPS signal a bumpy road ahead, challenging the feasibility of meeting Ark's grand projections. Musk himself expressed skepticism, labeling Ark's targets as "extremely challenging" on social media.

Tesla's Meteoric Rise: Is the Stock a Bright Star or Just a Shooting Comet? Tesla's Meteoric Rise: Is the Stock a Bright Star or Just a Shooting Comet?

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Monitoring IBM’s P/E Valuation

Trading around $230, IBM stock is at a 22.8X forward earnings multiple. While this is near the benchmark S&P 500, IBM does trade at a noticeable premium to its Zacks Computer-Integrated Systems Industry average of 11.3X, with some notable peers being Advanced Micro Devices AMD and Micron Technology MU.

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Bottom Line

For now, IBM stock lands a Zacks Rank #3 (Hold). To that point, more upside from here may largely depend on what is hopefully a trend of positive earnings estimate revisions in the coming weeks, as analysts digest IBM’s favorable outlook despite tariff concerns impacting the broader market.

Zacks Names #1 Semiconductor Stock

It’s only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.

With strong earnings growth and an expanding customer base, it’s positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.

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This article originally published on Zacks Investment Research (zacks.com).

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