Is the IBM stock a buy or sell after reporting strong Q2 results?

The IBM (NYSE: IBM) stock price soared by more than 3% in extended hours after the company reported strong quarterly results. The stock is trading at $143, bringing its total market capitalization to more than $123 billion.

IBM earnings review

In a report published on Monday, IBM said that its revenue grew by 3% in the second quarter, helped by the overall performance in Global Business Services and software. Its total revenue rose to $18.7 billion while its operating earnings per share rose to $2.33. As a result, its free cash flow rose to $3.8 billion.

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The company managed to grow its cloud computing business grew by 13% to $7 billion. While this is an overall performance, it will likely lag that of other companies like Microsoft and Amazon. In the past few years, IBM’s cloud business has grown at a relatively slower pace than these firms. As a result, its overall market share is substantially below that of its peer companies.

By segment, the cloud and cognitive software rose by 2% in the quarter while its cloud and data platforms rose by 8%. Red Hat’s revenue rose by 17%. Meanwhile, cognitiv applications revenue rose by 8% while transaction processing platforms revenue declined. GBS revenue rose to $4.3 billion. In a statement, the firm’s CEO said:

“We are seeing growing momentum in our IBM Cloud for Financial Services. Banks have stringent needs driven by compliance, security and resiliency. Launched last year, the IBM Cloud for Financial Services includes key control and security features built right into its very core.”

Therefore, the price action of the IBM stock price was a reflection that investors loved what they saw. Still, there are concerns about whether the company will be able to take market share from prominent firms like Microsoft and Amazon. 

Analysts have low expectations for IBM stock price. Those at BMO Capital Markets expect that the stock will rose to $155 while those at Credit Suisse expect it to rise to $165. Similarly, analysts at Stifel, Morgan Stanley, and JP Morgan boosted their estimates to more than $150. So, is the IBM stock a buy or sell?

IBM stock price analysis

The daily chart shows that the IBM stock rose after the company published relatively strong quarterly results. The shares are still above the 50-day and 200-day moving averages. However, a closer look shows that the stock has formed what looks like a head and shoulders pattern. In price action, this pattern is usually a sign that a bullish trend is reversing. Therefore, there is a possibility that the stock will retreat to the 50% retracement level at $130.

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