IBM is like a super-tanker. Turning it around takes time. It is the task of Arvind Krishna — an electrical engineer and an IBM veteran with 30 years spent mostly on software,  its CEO appointed in April 2020. The turnaround’s main task is to pivot the company as a key player on hybrid cloud offering IT infrastructure built on a mix of legacy servers and the cloud with a focus on trust and security. The share has been hit by pedestrian growth and eroding market share and margins in a growing market.

The last three quarters are indicating a slow return to growth. In the words of IBM’s CEO, “technology has shifted from being just one aspect of a business to being the source of competitive advantage. When that happens …we think and we believe and the past couple of quarters have borne this out, that demand for technology is going to sit at 4 points to 5 points above GDP. Even if GDP falls to flat or there’s a quick recession or if it’s a very slight recession, we see demand staying strong and continuing. “

Will this be enough to change market sentiment? It remains to be seen. But IBM is intriguing with a very low valuation and a wall of skepticism from investors. Hybrid cloud strategy is starting to pay off. Besides, the company’s unique know-how in high-end semi-conductors, super-computers and quantum computing adds optionality on the upside. The most important change is cultural as a welcome more client-centric culture is being implemented. Wall Street analysts have recently and cautiously revised upwards their target price. We don’t know yet whether it is the beginning of the end or the end of the beginning, but a confirmation of the slowly improving trends might open to a re-rating.

IBM earned $1.40 per share on $14.2 billion for the first quarter, topping estimates of $1.39 per share and $13.84 billion in sales. Bank of America analyst raised his price target slightly, to $165, from $162, as he looks ahead to 2023. Credit Suisse also upped its target price to $165 and Morgan Stanley did the same before the earnings announcement.  In a rare move under tough macro headwinds, IBM confidently raised its FY22 guidance.

Warren Buffet seems to be in a buying mood. He got hurt investing in IBM in 2012 and exited at a loss. After a lost decade, the shares are matching again his investment criteria with a bit of growth momentum in the pipe.