IBM(NYSE: IBM) stock was a big winner in 2025. Shares of the tech giant soared 35%, handily beating the S&P 500. IBM spent much of the past decade stuck in a slow, inconsistent turnaround effort after arriving late to the cloud computing party. Over the past few years, however, the company has emerged from this malaise. A focus on hybrid cloud computing and enterprise AI has kick-started IBM’s growth and set up the company for long-term success.
While IBM stock is close to an all-time high, there are still multiple reasons for long-term investors to jump in now.
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Predicting anything about where the AI industry is heading is next to impossible. The technology is evolving quickly, and the amount of capital being thrown into AI data centers is unprecedented. Meanwhile, AI companies like OpenAI are burning through cash at a staggering rate.
While picking the winners of the AI boom won’t be easy, IBM’s unique AI strategy appears likely to succeed regardless of how the AI industry evolves. IBM isn’t developing expensive frontier AI models or pouring capital into AI data centers. Instead, its strategy centers on delivering real value to its enterprise customers. Through its consulting business, IBM creates AI solutions that deliver predictable returns on investment for its customers.
IBM has booked $9.5 billion in AI-related business so far, with about 80% of that total coming from consulting signings. IBM was early to recognize that, in addition to software, enterprises adopting AI also need implementation and other services. SNS Insider predicts that the AI consulting market will grow from $8.75 billion in 2024 to $49.1 billion by 2032.
IBM’s AI business doesn’t make as many headlines as other companies, but it’s working behind the scenes to unlock productivity in the enterprise.
The concept of quantum computing has been around for decades. In a nutshell, while traditional computers store and process bits of data, which can be either 0 or 1, quantum computers work with qubits. These qubits, thanks to the bizarre properties of quantum mechanics, exist as a combination of those two states. This property enables quantum computers to perform certain computations exponentially faster than traditional computers.
While quantum computing could revolutionize the computing industry, it isn’t yet commercially viable or useful for real-world applications. IBM is looking to change that over the next decade.
By the end of this year, IBM expects to have demonstrated quantum advantage, where a quantum computer outperforms a classical computer. By 2029, the company expects to deliver the first fault-tolerant quantum computer. Qubits are fragile, and errors can quickly cascade and derail a computation. Error correction and mitigation are key problems that must be addressed for quantum computing to be commercially viable. In 2033 and beyond, IBM plans to scale up its fault-tolerant quantum computers to the point where they have real use cases in a variety of fields.
It will take years for IBM’s quantum computing investments to pay off, but with one estimate putting the quantum computing market at $97 billion by 2035, IBM is at the center of a major long-term opportunity.
For investors looking to benefit from AI and quantum computing while minimizing risk, IBM is a great option. Not only is the stock reasonably priced relative to free cash flow, but it also pays one of the most reliable dividends among publicly traded companies.
IBM’s quarterly dividend is currently $1.68 per share, yielding roughly 2.2%. That’s certainly not the highest dividend yield, but that’s partly because the stock has soared over the past few years. In terms of reliability, IBM’s dividend is tough to beat. IBM has paid quarterly dividends continuously since 1916. Through two world wars, the dot-com bubble, the financial crisis, and the pandemic, IBM has never missed a dividend payment. The company also has a 30-year streak of increasing its dividend annually.
Dividends aren’t exciting, but they never go out of style.
While IBM stock is trading near its all-time high, it remains attractive. IBM raised its 2025 free cash flow forecast in October to $14 billion, partly due to the success it’s been having with its AI business. That works out to a price-to-free cash flow ratio of about 20. Not cheap, but not expensive, either.
IBM isn’t a growth stock, but free cash flow has room to expand in 2026 and beyond as the company grows its AI business. Looking further down the road, quantum computing could eventually be a huge source of revenue and profit for IBM. With a reasonable valuation and solid growth prospects, IBM is a top stock to buy right now.
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Timothy Green has positions in International Business Machines. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.
