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IBM Rallies 5.55% on Q2 Earnings Beat

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IBM Higher Ahead of The Open

Shares in electronics manufacturer IBM are trading 5.55% higher pre-market on Tuesday following the company’s Q2 earnings report, released last night. Expectations were geared rather low as a result of the disruption caused by the COVID-19 crisis. Wall Street was looking for earnings per share of just $2.07.

However, IBM surprised to the upside with reported earnings of $2.18 per share. The news has helped lift IBM’s shares. it has also helped lift US equities in general, offering hope that similar companies’ performances over the quarter will not be as bad as expected.

COVID Damage Noted

Despite the beat on earnings, however, the result does reflect visible damage as a result of the COVID-19 disruption. Earnings are down 31% on the same period last year. While revenues beat analyst forecasts of $17.72 billion over the quarter, at $18.1 billion, they marked a 5.4% drop on the same period last year.

Cloud Business Sees Big Growth

However, there were some encouraging aspects of IBM’s Q2 performance. IBM reported a 30% growth in its cloud business. This was a rise by $6.3 billion over the quarter, marking 3% growth on the same period last year.

This report drew a lot of attention as it was the first one since Arvind Krishna took over as CEP, having previously been head of IBM’s cloud business.

In a statement issued on Monday, Krishna said:

“We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world.”

Outlook Linked To Pandemic Path

In terms of looking ahead, IBM CFO Jim Kavanaugh was keen to highlight the importance of how the pandemic progresses.

He said that while IBM has a strong pipeline,

“yield will be linked to rate and pace of the recovery from the pandemic… The demand profile is really correlating around curves of the pandemic.”

The strong performance in IBM’s cloud business has lifted expectations for IBM over the second half of the year. Kavanaugh sees cloud as a $1.2 trillion market space and is confident in IBM’s ability to continuing attaining market share in the region.

IBM Approaching Critical Technical Level

ibm shares

IBM is fast approaching a critical technical level. The 128.80 mark is a major resistance level marking the August 209 low and the April 2020 high. The bearish trend line from this year’s highs is also seen around that level, creating further confluence.

Furthermore, given the current price action formation, this level could prove to be the right shoulder of a head and shoulders pattern, raising reversal risks. All in all, this will be an important level to watch and a break above here could signal the start of a much broader upside move.

Should price reverse from this level, however, focus will turn to support at the 115.51 level.

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