January 2, 2025

IBM Faces UK Watchdog Scrutiny for HashiCorp Buyout: Trouble Brewing?

business people have a meeting about company statistics

International Business Machines Corporation IBM has welcomed 2025 with an apparent glitch in its effort to develop a comprehensive suite of modernized cloud security and compliance solutions with the proposed acquisition of HashiCorp Inc. HCP. The deal, inked in April 2024, faced a last-minute intervention by the Competition and Markets Authority (“CMA”) – the United Kingdom’s antitrust regulator – as it seeks to investigate whether the transaction lessens fair competition in the market.

The Phase 1 investigation will give CMA until Feb. 25 to conclude whether a full-blown Phase 2 investigation is required into the deal. Interested parties will have until Jan. 16 to make their concerns known.

Digging Deep Into IBM-HCP Deal

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. IBM’s acquisition of HCP is a probable ploy to address these issues.

Representing an enterprise value of $6.4 billion, the deal will significantly augment IBM’s capabilities to assist enterprises in managing complex cloud environments. Moreover, HashiCorp’s tool sets will likely complement IBM RedHat’s portfolio, bringing additional functionalities for cloud infrastructure management. The integration of HCP’s cloud software capabilities is expected to bolster IBM’s hybrid multi-cloud approach with synergistic benefits and is likely to be accretive to earnings.

IBM Rides on Hybrid Cloud, AI Focus

IBM is poised to benefit from healthy demand trends for hybrid cloud and AI, which drive the Software and Consulting segments. The company’s growth is expected to be aided 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 boost profitability.

Its Apptio portfolio of enterprise agile planning (EAP), IT financial management and cloud FinOps solutions was recently made available on Microsoft Azure – the cloud computing platform of Microsoft Corporation MSFT. IBM also expanded the global availability of its software portfolio to 14 additional countries on the Azure Marketplace to better serve customers on their digital transformation journeys.

IBM’s EAP software eases the operation silos by helping portfolio managers and finance teams plan, manage budgets and align workforces across various technology priorities. The software integrates seamlessly with Azure DevOps to provide simplified management, increased efficiencies and potential cost savings by allowing clients to use Microsoft Azure Consumption Commitments.

Watsonx Platform: IBM’s Core Technology for AI

IBM’s Watsonx platform is likely to be the core technology platform for its AI capabilities. Watsonx delivers the value of foundational models to the enterprise, enabling them to be more productive. This enterprise-ready AI and data platform comprises three products to help organizations accelerate and scale AI — the watsonx.ai studio for new foundation models, generative AI and machine learning, the watsonx.data fit-for-purpose data store built on an open lake house architecture and the watsonx.governance toolkit to help enable AI workflows to be built with responsibility and transparency.

IBM’s Price Performance

Buoyed by strong demand for hybrid cloud and AI, IBM has surged 36.1% over the past year compared with the industry’s growth of 7.6%, outperforming peers like Microsoft but lagging Amazon.com, Inc. AMZN.

One-Year Price Performance

Estimate Revision Trend of IBM

IBM is currently witnessing an uptrend in estimate revisions. Earnings estimates for 2024 have jumped 4% to $10.16 over the past year, while the same for 2025 has increased 1.7% to $10.61. The positive estimate revision portrays bullish sentiments about the stock’s growth potential.

Key Valuation Metric

From a valuation standpoint, IBM appears to be trading at a premium relative to the industry and is trading well above its mean. Going by the price/book ratio, the company shares currently trade at 8.29, higher than 3.19 for the industry and the stock’s mean of 5.85.

End Note

IBM aims to benefit from the increasing propensity of business enterprises to undertake a cloud-agnostic and interoperable approach to secure multi-cloud management with a diligent focus on hybrid cloud and generative AI solutions. With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment and quantum computing, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has led to a healthy demand trend for a hybrid-cloud approach.

IBM hybrid cloud blends public cloud, private cloud and on-premises infrastructure to develop a single, flexible, cost-optimal IT infrastructure. The proposed acquisition of HashiCorp will create a comprehensive end-to-end hybrid cloud platform built for AI-driven complexity, delivering clients extensive application, infrastructure and security lifecycle management capabilities. Although the scrutiny by the anti-trust regulator has created a temporary roadblock, the transaction is likely to get a green signal as it aims to fulfill IBM’s long-term vision of developing a robust and resilient cloud portfolio catering to the diverse needs of businesses across sectors.

With a Zacks Rank #2 (Buy), IBM appears primed for further price appreciation. Consequently, investors are likely to profit if they bet on this high-flying stock now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

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