Could IBM Stock Surge Another 16%?

Shares of International Business Machines (NYSE: IBM) have soared more than 60% over the past year as the company's cloud and artificial intelligence (AI) strategies meshed with investors. IBM has not only returned to consistent revenue and free-cash-flow growth, but growth is now starting to accelerate. Revenue was up 3% adjusted for currency in 2024, and it's expected to rise at least 5% in 2025 despite an uncertain economic backdrop.

Image source: Getty Images.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Last week, an analyst at Wedbush boosted his price target on IBM stock from $300 to $325, implying an additional 16% upside from Friday's closing price. While analyst price targets shouldn't carry much weight with investors, the reason behind the price target boost should be of interest. Wedbush calls IBM an "AI winner" and expects the company's "growth renaissance" to continue.

IBM's AI strategy is working

Unlike other technology giants buying up mountains of powerful AI accelerators for their data centers and training highly advanced AI models, IBM is focusing on solving real problems for its enterprise customers. IBM's AI business has two main parts: software and consulting. While software is important, consulting is the secret sauce.

On the software side, IBM offers its Watsonx platform, which enables customers to train, deploy, and manage AI models and agents with advanced governance features. For a large enterprise with sensitive data and strict regulatory requirements, a trusted AI platform like Watsonx is critical.

IBM does offer its own AI models, although the focus is on low costs and high efficiency. IBM's Granite family of models are much smaller than top-tier AI models, but they're designed to be fine-tuned for specific tasks. The Granite 4.0 family of models includes Granite 4.0 Tiny, an AI model capable of being run on consumer-grade hardware. Using the most advanced AI models, running AI workloads can be extremely expensive. Part of IBM's pitch is that its AI platform can help enterprises lower costs.

IBM has booked more than $6 billion worth of generative AI-related business, but the majority actually stems from its consulting business. Enterprises need an AI software platform, but they also need guidance, implementation, and other services. IBM's consulting arm can work with clients to deploy AI workloads on third-party clouds or IBM's own cloud. Watsonx is available on AWS and Azure, so clients already committed to those platforms can still make use of IBM's AI services.

It's impossible to know how the AI industry will evolve over the next few years, given how quickly the technology is advancing and how much money is being thrown into AI data centers. While providing AI compute infrastructure or training the most advanced AI models could certainly be viable business models, IBM's approach looks likely to pay off. By focusing on delivering value to its enterprise clients with consulting services and inexpensive yet capable AI models, IBM is positioned to be an AI winner.

Not too late to buy IBM stock

Shares of IBM are not the bargain they were a few years ago, but there's still a lot to like. IBM expects to generate free cash flow of about $13.5 billion in 2025, putting the price-to-free cash flow ratio at 19. That's not necessarily cheap, but the valuation looks reasonable considering IBM's success in AI.

Beyond AI, IBM has some other long-term growth opportunities worth mentioning. Most notable is quantum computing, which could eventually be a major business for IBM. IBM recently outlined plans to build a full-scale fault-tolerant quantum computer by 2029. If successful, IBM's quantum computers could find real-world applications and tap into what could be an enormous market opportunity.

Investors shouldn't care all that much about what analysts say, but in this case, Wedbush appears to be on the money. IBM's AI strategy is accelerating the company's growth, and it should continue to do so for the foreseeable future.

Should you invest $1,000 in International Business Machines right now?

Before you buy stock in International Business Machines, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and International Business Machines wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $664,089!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $881,731!*

Now, it’s worth noting Stock Advisor’s total average return is 994% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 23, 2025

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