Cloud and other IT infrastructure and services provider Kyndryl Holdings Inc. (NYSE: KD) has impressed with a return of nearly 98% in the year leading to February 14, 2025. Indeed, as of that date, the stock is trading just below its all-time high achieved earlier in the month. As is so often the case with high-momentum stocks, though, investors may be simultaneously intrigued by Kyndryl as a potential investment opportunity and reluctant in case the rally is over or nearing its end.
While it's impossible to predict the future for KD shares, the strength of its position in a market with surging demand, its recent partnership with cybersecurity industry giant Palo Alto Networks Inc. (NASDAQ: PANW), and analyst optimism surrounding its return to sales growth all paint a bullish picture of this cloud and AI services firm.
Kyndryl's Dominant Position in a Growing Market
Investors and analysts often view Kyndryl as a dominant player in the fast-growing cloud services space, particularly for its integration of AI into its services. Ranking the stock Outperform, analysts at Scotiabank recently cited its "leading market position" among several factors supporting the bullish call. This example is one of many—perhaps unsurprising given Kyndryl's history as the Global Technology Services business of legacy tech giant IBM (NYSE: IBM) prior to the completion of its spinoff from the larger firm in 2021.
Cloud Services is one of the fastest-growing segments of the broader technology industry. With a global estimated market size of about $618 billion last year, it is expected to expand at a CAGR of 16% over the next nine years to reach $2.7 trillion by 2034. Kyndryl's competitive position and execution could help it to capture an outsized portion of this growth.
New Partnerships Add to Bullish View
On February 5, 2025, Kyndryl announced a major secure access service edge (SASE) services partnership with Palo Alto Networks, powered by Precision AI, to provide users with cloud-based network security tools. At the time of the announcement, Kyndryl noted a study indicating that nearly half of all mission-critical business technology around the world is either out of date or nearing the end of its planned life expectancy, as well as its own research suggesting that only 39% of businesses report IT structure that is prepared for future security risks.
Kyndryl's service partnership with Palo Alto Networks is the latest development in its ongoing partnership with the $125-billion cybersecurity giant. The two firms first announced a strategic alliance in October 2023.
The Palo Alto Networks partnership is just the most recent out of a longer list of high-profile agreements Kyndryl has made with major tech firms in recent months. In December, Kyndryl shared that it would expand its ongoing partnership with Nokia to provide new data center networking solutions, while in November, it reported a new suite of services developed with Microsoft Corp. (NASDAQ: MSFT) to bolster cyber resilience for business clients. Together, these and other partnerships not only boost Kyndryl's profile in the cloud services space but also provide it critical access to new markets and customers.
Analysts Are Optimistic Despite Mixed Earnings
Kyndryl's third quarter of fiscal 2025, ended December 31, 2024, was a mixed bag—revenue of $3.7 billion was down slightly year-over-year due in part to the divestiture of its SIS platform, while adjusted net income of $124 million was a sharp reversal compared with losses of $11 million in the prior-year quarter. The company's Consult unit is leading with double-digit revenue growth alongside what Kyndryl describes as "strong signings growth and significant margin expansion."
The company boosted its pre-tax income guidance for all of fiscal 2025 to $475 million, a year-over-year improvement of at least $310 million, as well as its adjusted cash flow forecast.
With improving margins, strong bottom-line performance, and signals that top-line growth could resume, and a major $300-million share repurchase program announced in November, it's no surprise that analysts favor Kyndryl. All four current analyst ratings of the firm are Buy, suggesting widespread optimism. They also see projected earnings growth for the company of a whopping 153% going forward; if these predictions come to pass, the company's share price rally—as massive as it has already been—could just be getting started.
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