International Business Machines Corp. (NYSE: IBM) posted better-than-expected earnings and the stock rallied. However, investors are not sold on the company’s long-term prospects. Its shares are down 19% in the past year, badly trailing its competition.
Some experts who cover the company say that IBM continues to muddle the way it reports its artificial intelligence and cloud revenue. IBM says these critical initiatives will offset drops in its old-line businesses like mainframes.
Forrester Research analyst Andrew Bartels told MarketWatch:
IBM wants to count hardware when they want to show the size of their cloud revenues, but don’t want to count hardware when they want to show growth in cloud revenues. So, of their $5.7 billion in reported cloud revenues, I would count only $3.1 billion as really being cloud, and most of that is private cloud.
And its efforts still languish compared to those of Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corp. (NASDAQ: MSFT). This shows up in stock performance. Over the past year, Microsoft shares are up 14% and Amazon’s by 19%.
Other investors complain IBM paid too much to buy Red Hat, for which it coughed up $34 billion. Edward Jones analyst Josh Olson said:
In some ways, it’s a move of desperation. They’ve been really struggling … to gain any significant traction in the strategic imperatives, and so Red Hat is a premier cloud company that will position them into a leadership position.
Have IBM’s prospects improved? Based on its earnings, probably. Are the prospects still at high risk? Probably, as well. The cost of Red Hat, the challenge of integrating it into IBM, and the advantages Amazon and Microsoft have are among those risks.
24/7 Wall St.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
