International Business Machines (IBM) has been one of 2025’s standout performers, with shares up more than 44% year-to-date—far exceeding the S&P 500’s roughly 16% gain. Despite this impressive rally and a valuation that now screens at a premium to many of its peers, I believe the stock still has room to run.
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IBM’s accelerating AI momentum, the continued expansion of its hybrid cloud ecosystem, and the recently announced acquisition of Confluent are enhancing the company’s strategic positioning. Together, these developments deepen IBM’s relevance in one of the most important technology cycles of the decade, broaden its addressable market, and strengthen its ability to deliver durable growth going forward.
IBM’s Portfolio Develops Momentum
IBM’s most recent quarter reflected the growing breadth of demand across its portfolio. The company’s GenAI-related business continues to scale rapidly: IBM’s AI backlog reached $9.5 billion in Q3, up from $7.5 billion the prior quarter, and represents one of the clearest indicators of AI adoption across IBM’s customer base. Enterprises are increasingly turning to IBM as they modernize systems, automate workflows, and embed AI into operational processes.
Software revenues continued to expand as customers sought to optimize operations while automating infrastructure and workflows. IBM’s hybrid cloud platform—powered by Red Hat and the broader software suite—remains central to this demand, with clients adopting IBM solutions to integrate disparate systems, orchestrate workloads across multiple clouds, and enable secure data flow for AI applications.
Infrastructure revenue also demonstrated considerable strength, rising 15% year-over-year in Q3. The adoption of IBM’s latest z17 mainframe reflects increasing enterprise interest in deploying advanced inference and high-performance AI workloads on mission-critical systems. Several companies are turning to IBM infrastructure not only for reliability but also because it can serve as a secure foundation for generative AI, especially when paired with IBM’s WatsonX tooling and governance layers.
IBM’s Acquisition of Confluent
Earlier this week, IBM announced its intent to acquire Confluent for $31 per share—or $11.4 billion in enterprise value—in an all-cash transaction expected to close mid-2026. Confluent is a leader in real-time data streaming, built initially on Apache Kafka and later enhanced with its own cloud-native Kora engine. The acquisition aligns directly with IBM’s strategy to strengthen its competitive position in hybrid cloud and enterprise AI.
The strategic rationale is compelling. Real-time data is a foundational requirement for modern AI, especially for inferencing and agentic AI systems. Unlike AI training, which depends on large historical datasets, AI inferencing requires a continuous, real-time stream of operational data. Confluent excels in this domain. Its capabilities enable enterprises to ingest, process, and analyze live data from disparate systems—enhancing IBM’s WatsonX platform and significantly improving Retrieval-Augmented Generation (RAG) performance. The acquisition positions IBM as a more formidable competitor against AI-centric data infrastructure leaders such as Databricks.
One of the most interesting aspects of the acquisition is the potential for revenue synergies. Despite being a leader in streaming data infrastructure, Confluent has captured only a tiny fraction of the Kafka user base. Over 150,000 organizations use open-source Kafka, yet Confluent has roughly 6,400 paying customers.
This gap primarily exists because Kafka’s complexity often requires specialized engineering expertise. IBM’s global consulting arm—with deep enterprise relationships—can accelerate monetization across this enormous installed base. Given the significant overlap between IBM’s customers and Kafka users, adoption of Confluent solutions under the IBM umbrella should meaningfully expand revenue contribution over the next several years.
In short, the Confluent acquisition does three things: it strengthens IBM’s AI stack, accelerates its hybrid cloud strategy, and significantly improves long-term visibility into software growth.
Strategic Partnerships Reinforce IBM’s AI Position
IBM has also been actively expanding its AI ecosystem through strategic partnerships. Its collaboration with Anthropic aims to embed Claude-powered capabilities into IBM’s software portfolio, improving developer productivity while incorporating IBM’s governance, security, and cost-control frameworks. This is particularly relevant for enterprises that require trustworthy AI infrastructure with full lifecycle management.
IBM also announced a partnership with S&P Global to integrate WatsonX Orchestrate into S&P’s supply-chain offerings. This represents a tangible example of how IBM is using agentic AI to reshape core enterprise workflows. These partnerships highlight IBM’s approach: embedding AI directly into industry-specific applications rather than offering general-purpose tools. This targeted integration strategy should help IBM scale adoption more efficiently while reinforcing its foothold in regulated, data-sensitive industries that prioritize governance and reliability.
Stretched Valuation With Earned Premium
IBM’s valuation sits above industry averages, with a P/E ratio of 28.30 and an EV/EBITDA multiple of 22.74—both notably higher than sector medians. Based on a combination of valuation models, including comparative P/E and EV/EBIT analyses as well as a 10-year discounted cash flow model, I estimate fair value at ~$280 per share. On paper, that implies about 9% downside from current levels.
However, while IBM does not screen as cheaply on a purely quantitative basis, I believe the company has earned its premium. IBM is showing sustained acceleration in AI-driven demand, robust growth across its software portfolio, and improved monetization from its infrastructure segment.
At the same time, the company continues to shift its business mix toward higher-margin, recurring-revenue categories. Taken together, these factors support the view that IBM’s elevated valuation reflects genuine fundamental strength—not unjustified exuberance.
Is IBM a Buy, Hold, or Sell?
Wall Street analysts share a constructive outlook, with a Moderate Buy rating composed of 10 Buy, 5 Hold, and 1 Sell recommendations. The average price target stands at $303.71, close to current levels, although several analysts have raised targets following the Confluent deal and the strong Q3 print.
Strengthening AI Flywheel Serves as Catalyst for IBM Stock
IBM is executing one of the most compelling enterprise AI strategies in the market. Its hybrid cloud platform continues to scale, software performance remains robust, and infrastructure demand is strengthening. At the same time, the company is deepening its presence in highly regulated industries that require secure, dependable AI solutions—an area where IBM’s credibility and long-standing enterprise relationships give it a competitive edge.
The acquisition of Confluent marks a transformational milestone, positioning IBM at the center of real-time data streaming and event-driven architectures—core foundations for next-generation AI inferencing. This move meaningfully expands IBM’s strategic relevance in the broader AI ecosystem and enhances the value of its existing software and cloud offerings.
While IBM trades at a premium, I view its current trajectory as strong, durable, and still underappreciated. With accelerating AI demand, expanding partnerships, and a more powerful hybrid cloud ecosystem, I remain bullish on IBM and continue to see further upside ahead.