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IBM stock surged last year as the tech giant's strategy started to pay off.
The AI business is booming, and IBM boosted its outlook as a result.
The company laid out a detailed quantum computing roadmap and is a leader in the field.
Shares of International Business Machines (NYSE: IBM) had a stellar year in 2025. The stock soared 34.7%, according to data provided by S&P Global Market Intelligence, beating the S&P 500 by a wide margin. The tech giant's booming AI business, as well as progress in commercializing quantum computers, helped drive the impressive gains last year.
Image source: Getty Images.
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IBM has built its AI business around constructing solutions for its enterprise customers that tackle real-world problems. The company's consulting business leads the charge, with the bulk of IBM's AI bookings coming from consulting signings. The rest comes from software, namely the company's watsonx platform.
IBM's AI book of business stood at $5 billion at the end of 2024. By the end of the third quarter of 2025, that figure had nearly doubled to $9.5 billion. Despite sluggish demand for some discretionary tech projects, AI growth was strong enough to prompt IBM to boost its full-year outlook. The company now expects constant-currency revenue to grow by more than 5% in 2025, along with $14 billion in free cash flow .
IBM isn't participating in the AI data center build-out bonanza, nor is it training expensive frontier AI models. Instead, it's using AI to unlock productivity for enterprise clients. IBM CEO Arvind Krishna expects AI to unleash trillions of dollars of enterprise productivity over time. IBM plans to be a key enabler.
Quantum computers aren't useful for real-world applications right now, but IBM and others are working feverishly to make useful quantum computing a reality. In 2025, IBM outlined a quantum computing roadmap that predicts the development of large-scale, fault-tolerant quantum computers within a decade.
By the end of 2026, IBM expects to demonstrate that a quantum computer, when paired with traditional computing methods, can outperform traditional computers alone for real-world computations. The company anticipates making the first fault-tolerant quantum computer available to its clients by 2029, with scaled-up versions to follow in 2033 and beyond.
Quantum computing has the potential to be a revolution, exponentially accelerating certain types of computations and unlocking breakthroughs in materials science, drug discovery, artificial intelligence, and other fields. Investors were smitten with quantum computing stocks in 2025, and IBM's quantum progress was no doubt responsible for at least some of the stock's performance.
Even after a 35% gain last year, IBM stock trades at roughly 20 times the company's free cash flow outlook for 2025. That's not a bargain, but it is a reasonable price to pay given the company's AI and quantum growth potential. While the state of the economy is a wild card, IBM's booming AI business can drive free cash flow growth in 2026, and quantum computing represents a moonshot that could pay off in a big way down the road.
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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.
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