12:31 PM EDT, 07/25/2024 (MT Newswires) -- International Business Machines ( IBM ) delivered "solid" Q2 earnings, with legacy business outperforming expectations while key growth areas like RedHat and consulting underperformed, Morgan Stanley said in a note Thursday.

The company's higher free cash flow guidance was driven by operational outperformance and the one-time benefit from the QRadar divestiture while the sustainability of this growth remains in question continued operational efficiency will be crucial for maintaining these positive trends, the firm added.

IBM's ( IBM ) consulting growth is being impacted by weak discretionary spending and generative artificial intelligence projects, which are "cannibalizing other areas of consulting spend," according to the note.

Morgan Stanley said that although Gen AI consulting bookings are significant, they are not yet adding new revenue while complicating the view of Gen AI as "a new and incremental growth vector."

Morgan Stanley raised the price target on IBM's ( IBM ) stock to $182 from $179 and reiterated its equalweight rating.

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