By Chibuike Oguh
NEW YORK (Reuters) -IBM shares jumped nearly 13% to a more than 10-year high on Thursday after the company reported a better-than-expected revenue outlook backed by strong demand for its artificial intelligence (AI) services.
Orders from IBM (NYSE:IBM)'s generative AI business, which includes bookings and sales from services such as those powered by its Watsonx AI platform, doubled in the fourth quarter and are expected to help its revenue grow by around 4%-6% in 2024, the company reported late on Wednesday.
Consulting firms and software companies, including Germany's SAP SE (ETR:SAPG), account for much of IBM's AI-related bookings, IBM Chief Financial Officer James Kavanaugh told Reuters.
IBM shares rose to a peak of $196.89, their highest since June 2013, adding about $20 billion to the company's market capitalization. The stock is now up nearly 11% and on track for its biggest daily percentage gain since March 2020.
At least eight Wall Street analysts, including from Bank of America, JPMorgan, Jefferies and Evercore, raised their price targets for IBM's stock following the announcement.
The median price target of the 20 analysts covering IBM is $144.50, unchanged from a month ago, and their average recommendation is "hold", according to LSEG data.
IBM's stock is currently trading at about 17 times its next 12-month's expected earnings versus its 2-year historical average of about 14 times, while its peers were trading at about 20 times, per LSEG data.
In an investor note, JPMorgan analysts led by Brian Essex raised their price target to $190 from $170.
"We don't think IBM has seen the valuation benefit that some technology peers have from AI, as recent multiple expansion has trended generally below the primary comparisons we look to for valuation," they said.