We recently compiled a list of the 10 Best Information Technology Services Stocks to Buy. In this article, we are going to take a look at where International Business Machines Corporation (NYSE:IBM) stands against the other information technology services stocks.
Information technology (IT) services are a key component of the broader IT market, which also includes services, devices, enterprise software, and data center systems. By 2023, global IT spending had surged to over $1.3 trillion. Regionally, North America and Asia were projected to account for 66% of global IT expenditure in 2022. Meanwhile, IT services spending in Latin America has consistently held a 6% share since 2019. Cloud computing is one segment of the broader IT market that is experiencing robust growth, with end-user spending anticipated to exceed $590 billion by 2023. Projections from Mordor Intelligence indicate an increase from $0.68 trillion in 2024 to an estimated $1.44 trillion by 2029, reflecting a compound annual growth rate (CAGR) of 16.4%. This upward trend is expected to persist, with the market value approaching $2.5 trillion by 2032. These figures highlight the increasing adoption and utilization of cloud solutions across various industries.
On another front, the advent of 5G technology has led companies to establish networks on their premises. According to Ericsson, global 5G subscriptions are projected to exceed 5.6 billion by the end of 2029, accounting for 60% of all mobile subscriptions. Set to replace 4G by delivering ultra-fast speeds and significantly reduced latency, 5G is expected to become the leading mobile access technology by 2028. In Q1 2024 alone, 5G subscriptions surged by 160 million, bringing the total to 1.7 billion.
According to Gartner’s latest forecast, worldwide IT spending will reach $5.06 trillion in 2024, marking an 8% increase from 2023. This revised growth rate is up from the previous quarter’s estimate of 6.8%, setting the stage for IT spending to exceed $8 trillion well before the decade’s end. Additionally, spending on data center systems is anticipated to experience a significant growth surge, rising from 4% in 2023 to 10% in 2024, largely driven by preparations for generative AI. Speaking on this, John-David Lovelock, Distinguished VP Analyst at Gartner, said the following:
“Spending on IT services is projected to grow by 9.7%, surpassing $1.52 trillion and becoming the largest market tracked by Gartner. Enterprises are increasingly unable to compete with IT service firms in attracting talent with critical IT skill sets. As a result, there is a rising need for investment in consulting services over internal staffing. This year marks an inflection point, with more spending on consulting than on internal staff for the first time.”
Moreover, the AI industry has seen significant growth, with global funding doubling to $66.8 billion by 2021. According to a report by Precedence Research, the market will grow to approximately $2,575.2 billion by 2032, reflecting a CAGR of 19% from 2023 to 2032. Additionally, PwC suggests that AI could contribute around $15.7 trillion to the global economy by 2030, surpassing the current combined output of China and India. This contribution is expected to consist of $6.6 trillion from increased productivity and $9.1 trillion from effects related to heightened consumption.
Our Methodology
To identify the best information technology services stocks to buy now, we utilized Insider Monkey’s extensive database, which tracks 920 hedge funds as of Q1 2024. We selected the information technology services stocks that had the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 49
International Business Machines Corporation (NYSE:IBM), a leader in the IT services industry with its ITSM solutions and consulting, is currently in the spotlight following strategic decisions by its management. Recently, IBM decided to sell its QRadar product to Palo Alto Networks and announced the release of its Granite models as open-source software. These moves are seen as efforts to focus on more profitable areas. Additionally, IBM’s acquisition of HashiCorp, while initially expected to dilute earnings, is projected to become earnings per share (EPS) accretive by 2026.
On June 25, Goldman Sachs initiated coverage on IBM shares with a Buy rating and a price target of $200. The firm praised IBM’s strategic shift towards long-term growth, highlighting the company’s focus on infrastructure software assets, especially those related to open-source and artificial intelligence.
In addition, International Business Machines Corporation (NYSE:IBM)’s financial performance and strategic changes are garnering investor interest. Revenue is expected to grow from $60.5 billion in 2024 to $65.5 billion in 2025, with EPS increasing from $9.13 in 2024 to $10.34 in 2025. The company’s strategic focus on AI and hybrid cloud services is anticipated to attract further investor interest, driven by a significant AI-centric backlog and the potential for Red Hat to accelerate its performance.
According to Insider Monkey’s database of 920 hedge funds, 49 had stakes in International Business Machines Corporation (NYSE:IBM). The largest hedge fund stakeholder was AQR Capital Management, which owns a $232.9 million stake in the company.
Overall IBM ranks 9th on our list of the best information technology services stocks to buy. You can visit 10 Best Information Technology Services Stocks to Buy to see the other information technology services stocks that are on hedge funds’ radar. While we acknowledge the potential of IBM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IBM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
