Buy the Dip on IBM Stock

Core Insights - IBM's first-quarter results showed mixed performance, with revenue of $14.46 billion missing consensus estimates by $80 million and adjusted earnings per share of $1.68 falling short by $0.09 [1] - Despite the revenue miss, overall revenue increased by 3% in constant currency, free cash flow surged to $1.9 billion, and profit margins improved [1] - The software segment experienced a 6% revenue growth, driven by Red Hat and artificial intelligence, while the infrastructure segment also grew despite being in the mainframe product cycle for two years [1] Consulting Business Challenges - The consulting segment faced challenges, with revenue rising only 2% year over year in constant currency, as clients are hesitant to invest in discretionary projects amid economic uncertainty [2] - The backlog in the consulting business grew by 7% year over year, totaling about $30 billion, but the duration to convert this backlog into revenue is lengthening, particularly for large digital transformation projects [2] AI-Related Opportunities - There is significant growth in AI-related consulting, with IBM booking over $1 billion in business related to generative AI, primarily through its Watsonx platform [3] - While companies are cutting back on some spending, investments in AI are increasing, indicating a shift in client priorities [3] Full-Year Outlook - IBM maintained its full-year outlook, expecting total revenue growth at a mid-single-digit rate in constant currency and projecting approximately $12 billion in free cash flow [4] - The company is well-positioned to capture AI-related business as clients focus on return on investment, making IBM's consulting and AI software platform a strong combination [4] Investment Opportunity - Following the post-earnings decline, IBM's shares present a buying opportunity, trading at less than 13 times the free cash flow outlook, with a market capitalization around $154 billion [5] - Although the first-quarter report was not exceptional, it did not alter the long-term growth narrative for the company [5]