IBM Just Bolstered This Critical Business

Source The Motley Fool

International Business Machines' (NYSE: IBM) strategy centers around hybrid cloud computing and artificial intelligence (AI). In the cloud computing market, IBM's acquisition of Red Hat forms the foundation of its hybrid cloud platform. For large companies and organizations looking to modernize their infrastructures and applications, aiming to save money, remove the burden of legacy tech, or deploy new technologies like AI, IBM's hybrid cloud platform offers a path forward.

IBM's strategy in AI is similar. The company launched its watsonx AI platform last year, providing enterprise clients with a platform for developing, training, deploying, and managing AI models and agents. Since that launch, IBM has booked about $3 billion worth of business related to AI and is now adding more than $1 billion of new business each quarter.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

While these software platforms are at the center of IBM's overall strategy, it's the consulting business that's ultimately doing a lot of work. Large organizations need not only software but also guidance, solutions, implementation, and other services as they go through complex and prolonged modernization efforts. A company with on-premises servers running outdated applications needs a lot of help transitioning to a hybrid cloud architecture and deploying new AI workloads.

Remember that $3 billion of AI-related business? About 80% of that total was consulting bookings, with the rest coming from software. IBM's consulting business is a key differentiator for the company as it goes after the hybrid cloud computing and enterprise AI markets.

A smart acquisition

One important aspect of IBM's consulting business is that it's free to construct solutions for clients involving non-IBM products and services. Through a wide range of partnerships, IBM's consulting arm builds solutions involving competing cloud platforms, like Amazon (NASDAQ:AWZN) Web Services (AWS) and Microsoft (NASDAQ:MSFT) Azure, and competing software from companies like Oracle. This agnosticism is one reason IBM's consulting business works.

On Thursday, IBM announced that it planned to acquire Applications Software Technology, a global Oracle consultancy. IBM competes with Oracle in multiple areas, but the company also recognizes that armies of potential customers currently use Oracle software. By serving those customers and their Oracle-related needs, IBM can bring in new clients and potentially sell them additional products and services down the road.

Because much of Oracle's software is mission-critical, a client going through a modernization effort is likely to stick with Oracle software. With this acquisition, IBM broadens its ability to serve those clients.

Betting on partnerships

IBM's growing collection of strategic partnerships, like the partnership with Oracle, is bringing in billions of dollars in business that IBM otherwise wouldn't win. In the cloud computing market, these partnerships are particularly important. While IBM has its own public cloud platform, a potential client will most likely want to use AWS, Azure, or some combination of the two. By building solutions that involve the technology clients want or need, IBM opens the door to far more business than it would otherwise win.

While IBM stock trades near its all-time high, the company is performing well as its platform and consulting strategies pay off. The company expects to generate in excess of $12 billion in free cash flow this year, and that number has the potential to grow further in the years ahead. Based on that forecast, IBM stock trades for about 17 times free cash flow.

This Oracle consultancy acquisition may not be a major development, but it's another step that drives the company's consulting strategy forward. As enterprises race to modernize, IBM is increasing its appeal as the partner of choice.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

  • Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $346,349!*
  • Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,229!*
  • Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $454,283!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of January 13, 2025

Timothy Green has positions in International Business Machines. The Motley Fool has positions in and recommends International Business Machines and Oracle. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Natural Gas sinks to pivotal level as China’s demand slumpsNatural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
Author  FXStreet
Jul 01, 2024
Natural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
placeholder
XRP Price Eyes Bullish Flag Breakout That Could Put 50% Gains On The BoardDespite recent declines and volatility, a crypto analyst has declared that the XRP price is on the cusp of breaking out of a bullish flag pattern. According to the analyst, a successful breakout of
Author  NewsBTC
Jan 09, Thu
Despite recent declines and volatility, a crypto analyst has declared that the XRP price is on the cusp of breaking out of a bullish flag pattern. According to the analyst, a successful breakout of
placeholder
Should You Buy XRP (Ripple) Before Jan. 20?In 2020, the U.S. Securities and Exchange Commission (SEC) sued a company called Ripple, alleging it was in breach of the law for the way it issued its XRP (CRYPTO: XRP) cryptocurr
Author  The Motley Fool
Jan 15, Wed
In 2020, the U.S. Securities and Exchange Commission (SEC) sued a company called Ripple, alleging it was in breach of the law for the way it issued its XRP (CRYPTO: XRP) cryptocurr
placeholder
Bitcoin Coinbase Flow Pulse Shows Bullish Trend As Institutional Interest Surges – DetailsBitcoin has been struggling to reclaim the $100K mark but remains resilient above the $96K level after a sharp market-wide selloff. Sunday night and early Monday saw a capitulation event, primarily affecting altcoins, leading to extreme volatility. BTC dropped over 9% in 24 hours, shaking investor confidence, only to recover more than 11% the same […]
Author  Bitcoinist
Feb 07, Fri
Bitcoin has been struggling to reclaim the $100K mark but remains resilient above the $96K level after a sharp market-wide selloff. Sunday night and early Monday saw a capitulation event, primarily affecting altcoins, leading to extreme volatility. BTC dropped over 9% in 24 hours, shaking investor confidence, only to recover more than 11% the same […]
placeholder
XRP Price Eyes 40% Gains, Analyst Reveals The ‘Best Level’ To Buy And HoldCrypto analyst ProjectSyndicate has made a bullish case for the XRP price, which he predicts could record 40% gains soon enough. The analyst also revealed the price level, which he believes is ideal
Author  NewsBTC
Feb 07, Fri
Crypto analyst ProjectSyndicate has made a bullish case for the XRP price, which he predicts could record 40% gains soon enough. The analyst also revealed the price level, which he believes is ideal
goTop
quote