Jim Cramer’s Lightning Round: 7 Stocks to Watch

1. International Business Machines Corporation (NYSE:IBM)

Number of Hedge Fund Holders: 56

Cramer called International Business Machines Corporation (NYSE:IBM) stock episodic and said that he is on board.

“I like IBM. I like IBM. It’s still an inexpensive stock. It’s still got upside. It’s a little more episodic than I like. But you know, had that down trip but at 22 times earnings, I am on board.”

International Business Machines (NYSE:IBM) offers integrated solutions and services, including hybrid cloud and AI platforms and server and storage solutions for hybrid cloud deployments. The third quarter marked the five-year anniversary of its acquisition of Red Hat, its open-source software subsidiary. Since the acquisition, Red Hat’s revenue has grown significantly, reaching around $6.5 billion and doubling in size.

This growth has been driven by a compound annual growth rate in the mid-teens. Additionally, the OpenShift platform, which was valued at approximately $100 million in annual recurring revenue (ARR) at the time of acquisition, has now expanded more than tenfold, reaching $1.3 billion in ARR. Red Hat has also broadened its global presence, entering new markets worldwide, and continues to drive innovation with new offerings like Ansible 2.5, RHEL AI, and OpenShift AI.

In Q3, International Business Machines (NYSE:IBM) reported a strong 10% growth in Software revenue, which includes a 14% increase from Red Hat alone. Another key development for the company came in 2023 with the introduction of the Watsonx generative AI platform. Shortly after its launch, Watsonx secured over $2 billion in contracts, positioning itself as a significant growth driver for IBM in the years ahead.

IBM’s Chief Financial Officer, Jim Kavanaugh, expressed confidence in the company’s growth trajectory heading into 2025. Kavanaugh highlighted the acceleration in Software revenue, opportunities for further growth with Red Hat, the new mainframe cycle, and IBM’s strong position in generative AI, alongside contributions from acquisitions, as key factors driving future success.

While we acknowledge the potential of International Business Machines Corporation (NYSE: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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