A year ago, I predicted that International Business Machines (NYSE: IBM) would outperform Apple (NSDQ: AAPL) over the next twelve months. My reasoning was simple; while Apple was busy creating new apps for its iPhone, IBM was busy winning market share in the rapidly growing artificial intelligence (AI) sector.

It’s not that I thought AAPL would perform poorly. I said then about the new features Apple introduced: “I’m sure those products will sell well. Apple has a huge base of loyal users that always snap up the latest gizmos from the company.”

At the same time, IBM and Microsoft (NSDQ: MSFT) were teaming up to market both company’s AI products and services. Although I felt Apple’s products would ring the cash register, I also believed that the total addressable market (TAM) for IBM’s AI portfolio was considerably greater than demand for Apple’s specialty products.

I was right. Since then, Apple has gained 12 percent while IBM has appreciated more than twice that amount. In fact, IBM has delivered a better total return than AAPL over the past five years, too (143 percent versus 123 percent).

That news may come as a surprise to the folks on Wall Street that wrote off IBM years ago as an old tech has-been. And while the company was mostly being ignored, it gradually reinvented itself as a major player in AI. Suddenly, “big blue” is red hot again!

From the PC to AI

It is rare that a company gets a second chance to become trendy. Forty years ago, IBM was at the leading edge of the personal computer revolution. The company launched its first personal computer (PC) in 1981, the same year that I graduated from college.

A lot of things have changed since then. Desktop PCs have largely been replaced by portable computing devices such as smartphones, tablets, and laptops. IBM failed to keep up with that transition, focusing on mainframe computers instead.

That decision cost the company dearly. From 2007, the year Apple introduced its first iPhone, through 2022 IBM’s share price gained no ground. For fifteen years, its shareholders had nothing to show for their investment.

Since then, IBM has nearly tripled in value thanks in large part to interest in the sector generated largely by NVIDIA (NSDQ: NVDA), which has revolutionized the AI market. As far as Wall Street is concerned, any company with meaningful exposure to AI is a stock worth owning these days.

Exceeding Expectations

Wall Street’s renewed confidence in IBM was confirmed by the company’s fiscal 2025 Q2 results (ended June 30) released two months ago. During the second quarter, IBM’s revenue increased 8 percent on a year-over-year basis while its gross profit margin expanded by 200 basis points (two percentage points).

Also, the company reaffirmed its guidance for at least 5 percent revenue growth this year and raised its expectations for free cash flow to at least $13.5 billion. That’s a lot of money to reinvest in the growth of the business, pay dividends, and buy back stock.

To hear IBM’s CEO, Arvind Krishna, tell it the company is just getting started: “We once again exceeded expectations for revenue, profit and free cash flow in the quarter. IBM remains highly differentiated in the market because of our deep innovation and domain expertise, both crucial in helping clients deploy and scale AI.”

Despite the company’s strong performance, IBM is still relatively cheap for a large-cap tech stock. Its forward price-to-earnings ratio of 24 is identical to the same multiple for the NASDAQ 100 Index. Also, its quarterly cash dividend payment of $1.68 equates to a yield of 2.4 percent, more than double the 1.1 percent yield paid the by the SPDR S&P 500 ETF (NSYE: SPY).

IBM > NVDA?

Now that my prediction from a year ago has proven true, I’ll go out on a limb and make an even bolder one: Over the next twelve months, IBM will outperform NVDA.

Bear in mind, I have a warm place in my heart for NVDA. Three years ago, I recommended NVDA to my Personal Finance subscribers while it was trading below $12 (split-adjusted). At the start of this week, it was going for 15 times that amount!

Just as IBM pioneered the PC market during the 1980s, NVIDIA got the AI revolution rolling in the 2020s. And now that NVIDIA has made AI available to the masses, it is the companies that facilitate its use that will reap the biggest rewards going forward.

There is a symmetry to IBM’s rise, fall, and resurrection that only a grey beard like me can fully appreciate. What was once old is new again, and it is being rediscovered by a new generation of investors who have never used a PC.