International Business Machines Corporation (IBM) was last worth more than Microsoft (MSFT) over a decade ago. On Dec. 12, 2011, IBM was worth $216 billion, while Microsoft had a market cap of $215 billion. Now however, Big Blue has gone down to $214B, while MSFT has become one of the premier Mag-7 companies in the world with a market capitalization of over $3.18 trillion.
IBM and Microsoft were both considered premier tech companies in 2011. However, over the following decade and a half, they adopted different strategies equaling to different futures. While Microsoft continues to innovate and expand, IBM divested its lower-margin businesses; cut costs; and plowed its cash into big buybacks to grow its earnings per share. As a result, its revenue stopped growing, and it has remained relatively stagnant ever since.
IBM’s New CEO Brings Change and Growth
In 2021, IBM’s cloud chief Arvind Krishna took the helm as its new CEO. Following Krishna’s appointment, IBM’s revenue grew at a CAGR of 4% from 2021 to 2023. Its EPS increased at a CAGR of 13%. That surprising stabilization caused IBM’s stock to nearly double over the past four years and roughly match Microsoft’s gains.
IBM mounted an impressive comeback under Krishna, but it’s still growing at a much slower clip than Microsoft. From 2023 to 2026, analysts expect Big Blue’s revenue and EPS to grow at a CAGR of 4% and 7%, respectively. But from fiscal 2024 to fiscal 2027, they expect Microsoft’s revenue and EPS to rise at a CAGR of 14% and 15%, respectively.
Microsoft’s work in the cloud infrastructure market puts it at a significant advantage over IBM, where the latter has less of a grip. IBM as an alternative is squeezing its hybrid cloud and AI solutions between those public cloud platforms and private on-site clouds.
Recently, IBM released the latest version of its artificial intelligence models catered towards businesses. The move by Big Blue looks to jump on the ongoing AI train amid a surge of interest in the artificial intelligence industry. Currently led by tech powerhouses Nvidia (NVDA) and Microsoft, IBM is hoping to compete in the further developing AI world.
Can IBM Surpass Microsoft in 10 Years?
Assuming IBM matches Wall Street’s expectations, grows its EPS at a CAGR of 7% from 2026 to 2036, and still trades at 20 times forward earnings, its stock might rise about 80% and boost its market cap to $370 billion by 2035. However, if Microsoft also matches analysts’ estimates, grows its EPS at a slower CAGR of 10% from fiscal 2027 to fiscal 2036, and trades at a more modest 20 times forward earnings, its stock price could double and drive its market cap to nearly $6.4 trillion by 2035.
Hence, IBM surpassing Microsoft in valuation in 10 years is a very steep climb. Few companies have ever seen growth that large to challenge the Mag-7 of the stock world. It would likely take Nvidia (NVDA)-like innovation and growth for Big Blue to reach Microsoft status.
