International Business Machines Corporation IBM recently announced that it has completed the acquisition of HashiCorp Inc. (HCP) for an enterprise value of $6.4 billion. This acquisition is expected to strengthen the two companies’ shared mission to help clients innovate faster, enhance security, and fully leverage the potential of the cloud.
Based in California, HashiCorp is a software company that enables organizations to efficiently automate multi-cloud and hybrid environments with its Infrastructure Lifecycle Management and Security Lifecycle Management solutions.
With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI (Artificial Intelligence) deployment, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which has led firms to undertake a cloud-agnostic and highly interoperable approach to highly secure multi-cloud management.
Further, it is projected that generative AI will create 1 billion new cloud-native applications by 2028, increasing the demand for advanced automation solutions. IBM’s acquisition of HCP is a probable plan to address these issues.
How This Acquisition Could Prove Beneficial for IBM?
The acquisition brings powerful synergies across various strategic growth areas of IBM, such as Red Hat, watsonx, and IT automation solutions. HashiCorp's products, including Terraform and Vault, are central to this vision. Post acquisition, the infrastructure-as-code software tool Terraform will be integrated with IBM’s Red Hat Ansible Automation Platform, bringing additional functionalities for cloud infrastructure management. It can also be used in the deployment of IBM Z applications in hybrid cloud settings, strengthening the overall ecosystem. Moreover, HashiCorp's Vault, in tandem with the Red Hat OpenShift platform, will likely enhance security and secrets management across hybrid cloud environments.
The integration of HashiCorp solutions will also complement IBM's broader strategy to drive growth in critical areas like AI-driven IT automation, data security, and IT consulting. The addition of the new cutting-edge products will enhance IBM’s ability to help organizations optimize IT spending, reduce cloud costs, and improve overall efficiency through automation. This includes software tools for application management, IT observability, application performance optimization, and financial management solutions for real-time insights into IT spending.
Does IBM Stock Stand to Gain From the Acquisition?
IBM has evolved as a leading provider of cloud and data platforms and is poised to benefit from strong demand for hybrid cloud and AI, driving growth in Software and Consulting. The company’s growth is expected to be driven primarily by analytics, cloud computing, and security in the long haul. A combination of a better business mix, improving operating leverage through productivity gains and increased investment in growth opportunities will likely drive profitability.
With a strong presence in more than 170 countries, the acquisition underscores IBM’s commitment to advancing its industry-leading solutions for businesses. This will likely help IBM attract more customers, leading to higher revenues in the upcoming quarters. Improved financial performance is likely to propel the stock upward.
IBM’s Stock Price Performance
Shares of IBM have gained 36.6% over the past year against the industry’s 8.1% decline.
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IBM’s Zacks Rank and Other Stocks to Consider
IBM currently carries a Zacks Rank #2 (Buy).
A couple of other top-ranked stocks in the broader industry have been discussed below:
InterDigital IDCC sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the trailing four quarters, it delivered an earnings surprise of 158.41%. It is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company designs and develops a wide range of advanced technology solutions used in digital cellular, wireless 3G, 4G and IEEE 802-related products and networks.
Celestica Inc. CLS sports a Zacks Rank #1 at present. The company provides competitive manufacturing technology and service solutions for printed circuit assembly and system assembly, as well as post-manufacturing support to many of the world's leading original equipment manufacturers.
Arista Networks, Inc. ANET, carrying a Zacks Rank of 2 at present, supplies products to a prestigious set of customers, including Fortune 500 global companies in markets such as cloud titans, enterprises, financials and specialty cloud service providers.
Arista delivered a trailing four-quarter average earnings surprise of 12.87%. It has a long-term growth expectation of 14.41%.
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