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IBM (IBM) stock surged nearly 8% on Friday following a breakthrough announcement that positions the company at the forefront of the quantum computing race. The tech giant revealed it can run quantum error-correction algorithms on standard AMD (AMD) chips, reducing the cost and complexity of scaling quantum systems. Advanced Micro Devices shares jumped alongside IBM as investors recognized the strategic value of the partnership. The breakthrough centers on IBM's ability to execute quantum error correction on AMD's field-programmable gate array chips without requiring expensive GPU clusters. The collaboration should accelerate IBM's ambitious goal of delivering a large-scale, fault-tolerant quantum computer by 2029. IBM's Quantum Future IBM's quantum computing hardware continues to advance, with recent demonstrations using its Heron processor with 77 qubits to simulate complex molecular structures. These experiments operated at utility scale, surpassing what traditional computers can achieve with exact simulation methods. Quantum computing has attracted investments from big tech giants. A few months back, Google (GOOGL) (GOOG) launched its Willow chip, and Microsoft (MSFT) introduced its first quantum processor. A Google executive indicated the technology could see a real breakthrough within five years. In fact, Google already appears to have made a significant breakthrough in its algorithm. IBM's partnership with AMD makes quantum systems accessible and cost-effective to deploy. The ability to leverage AMD chips rather than specialized hardware could accelerate adoption once quantum computers prove their commercial value. IBM expects to launch fault-tolerant systems by 2029 and should benefit from a first-mover advantage. For investors with long-term horizons, IBM's established position and systematic approach to achieving quantum advantage make a compelling case at current levels. AI-Powered Present IBM delivered its strongest quarterly performance in years as third-quarter revenue growth accelerated to 7%. The tech giant exceeded consensus estimates across key metrics, including revenue, profit, and free cash flow, which prompted management to raise full-year guidance. The company now expects revenue growth above 5% and free cash flow of approximately $14 billion for the full year. The results demonstrated broad-based momentum across IBM's portfolio. Software revenue surged 9%, driven by a 22% jump in Automation products that help clients optimize operations and reduce costs. Many of these solutions now incorporate AI capabilities, enhancing their value. HashiCorp, acquired earlier, continues accelerating within IBM's ecosystem. Consulting revenue returned to growth at 2%, reflecting surging demand for AI services as enterprises scale their artificial intelligence deployments. Infrastructure posted robust 15% growth powered by the z17 mainframe, which IBM called its strongest two-quarter launch ever. IBM's generative AI business reached $9.5 billion in total bookings since its inception, with Consulting accounting for $7.5 billion and Software approaching $2 billion. IBM signed over 200 consulting projects deploying digital workers at scale. Management highlighted strong demand for Watsonx and Red Hat AI, with early traction in Watsonx Orchestrate, an agentic platform that connects AI models and workflows with governance controls. IBM achieved significant productivity gains through internal AI adoption. It now expects to reach $4.5 billion in annual run-rate savings by year-end, more than doubling its original $2 billion target. Project Bob, an AI-powered software development tool, has delivered 45% productivity improvements among 8,000 IBM developers. Red Hat delivered 12% growth, with OpenShift bookings up nearly 40% and annual recurring revenue reaching $1.8 billion, up mid-30s %. The consulting backlog stands at a healthy $31 billion, growing 4% and posting the best erosion rates in multiple years. Management expressed confidence that it would return to market-level growth rates in 2026 as AI transformation projects accelerate across the enterprise landscape. What Is the IBM Stock Price Target? Analysts tracking IBM stock forecast revenue to increase from $62.75 billion in 2024 to $80 billion in 2029. In this period, its free cash flow is forecast to improve from 12.75 billion to $18.73 billion. IBM stock is trading at 20x forward FCF, above its five-year average of 13x. If we assume a 15x forward FCF multiple, IBM stock could decline marginally over the next four years. Out of the 22 analysts covering IBM stock, seven recommend “Strong Buy,” one recommends “Moderate Buy,” 12 recommend “Hold,” and two recommend “Strong Sell.” The average IBM stock price target is $284, which is below the current trading price of $318.
