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International Business Machines (IBM)
NYSE:IBM
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International Business Machines
(NYSE:IBM)
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Rating:70Outperform
Price Target:
$282.00
â–²(10.11% Upside)
Action:ReiteratedDate:01/29/26
IBM scores well on operating execution and forward outlook (strong 2026 guidance, software/ARR momentum, and higher expected free cash flow), supported by solid profitability and cash generation. The score is held back by elevated leverage, a high P/E valuation, and currently weak-to-neutral technical momentum (negative MACD and trading below key short-term moving averages).
Positive Factors
Software recurring revenue & ARR growth
Rising software mix and a $23.6B ARR base create durable recurring revenue and higher margin exposure. Consistent ARR expansion supports predictable cashflows, cross-sell opportunities and operational leverage, underpinning multi-year margin and revenue resilience.
Strong free cash flow generation
Sustained high free cash flow provides capital for debt reduction, M&A, buybacks and reinvestment. Robust FCF relative to earnings demonstrates earnings quality and funds strategic priorities without relying on external financing, improving long-term financial flexibility.
GenAI adoption and consulting backlog
A $12.5B GenAI book and >25% consulting backlog penetration indicate structural demand for AI transformation services. This secures long-term consulting revenue, increases high-value project pipeline and strengthens IBM's strategic position in enterprise AI and hybrid-cloud deployments.
Negative Factors
Elevated leverage
High absolute debt and a ~2.39 debt/equity ratio constrain financial flexibility, increase interest and refinancing risk, and slow balance-sheet de-risking. Even with strong cash flow, leverage limits maneuverability for large strategic investments or cushioning against cyclical downturns.
Red Hat growth deceleration & federal delays
Slower Red Hat growth and federal booking delays reduce near-term consumption and ACV signings, weakening a key hybrid-cloud growth engine. Persistent deceleration in this segment could temper software momentum and make recurring revenue less predictable over the medium term.
Infrastructure product-cycle and memory pricing risk
Cyclical product cycles and volatile memory pricing can compress infrastructure revenue and margins, harming a non-trivial revenue segment. Prolonged tech-cycle weakness or elevated memory costs could limit upside from hardware and services tied to refresh cycles for multiple quarters.
International Business Machines (IBM) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$240.24B
Dividend Yield2.21%
Average Volume (3M)6.80M
Price to Earnings (P/E)26.1
Beta (1Y)0.71
Revenue Growth4.51%
EPS Growth21.89%
CountryUS
Employees270,300
SectorTechnology
Sector Strength88
IndustryInformation Technology Services
Share Statistics
EPS (TTM)4.52
Shares Outstanding938,034,400
10 Day Avg. Volume6,034,594
30 Day Avg. Volume6,795,803
Financial Highlights & Ratios
PEG Ratio0.35
Price to Book (P/B)8.46
Price to Sales (P/S)4.09
P/FCF Ratio23.86
Enterprise Value/Market Cap1.20
Enterprise Value/Revenue4.28
Enterprise Value/Gross Profit7.27
Enterprise Value/Ebitda16.70
Forecast
1Y Price Target
$333.56Price Target Upside30.24% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering17
EPS Forecast (FY)12.39
Revenue Forecast (FY)$71.17B
International Business Machines Business Overview & Revenue Model
Company DescriptionInternational Business Machines Corporation provides integrated solutions and services worldwide. The company operates through four business segments: Software, Consulting, Infrastructure, and Financing. The Software segment offers hybrid cloud platform and software solutions, such as Red Hat, an enterprise open-source solutions; software for business automation, AIOps and management, integration, and application servers; data and artificial intelligence solutions; and security software and services for threat, data, and identity. This segment also provides transaction processing software that supports clients' mission-critical and on-premise workloads in banking, airlines, and retail industries. The Consulting segment offers business transformation services, including strategy, business process design and operations, data and analytics, and system integration services; technology consulting services; and application and cloud platform services. The Infrastructure segment provides on-premises and cloud-based server and storage solutions for its clients' mission-critical and regulated workloads; and support services and solutions for hybrid cloud infrastructure, as well as remanufacturing and remarketing services for used equipment. The Financing segment offers lease, installment payment, loan financing, and short-term working capital financing services. The company was formerly known as Computing-Tabulating-Recording Co. International Business Machines Corporation was incorporated in 1911 and is headquartered in Armonk, New York.
How the Company Makes MoneyIBM primarily makes money by selling enterprise software subscriptions and support, billing for consulting and delivery services, and generating revenue from infrastructure-related offerings. A major revenue stream is Software, which includes subscription and maintenance/support revenue from hybrid cloud, automation, data and AI, and security products; this model is largely recurring, with customers paying ongoing fees for access, updates, and support. Another major stream is Consulting, where IBM earns fees from technology and business consulting, systems integration, application modernization, and managed/delivery services; revenue is typically recognized as projects are delivered (e.g., time-and-materials or fixed-price engagements). IBM also generates revenue from Infrastructure, including the sale of on-premises systems (such as IBM Z and Power), associated operating systems and tools tied to those platforms, and ongoing maintenance and support contracts. In addition, IBM has financing activities through IBM Financing that can contribute income through financing arrangements for clients purchasing IBM offerings. Key factors supporting IBM’s earnings include long-term enterprise contracts, recurring software and support relationships, and ecosystem partnerships with major technology providers and open-source communities that help drive adoption and implementation of IBM’s hybrid cloud, AI, and security offerings. Specific partnership terms or revenue contributions by partner are null.
International Business Machines Key Performance Indicators (KPIs)
Any
Revenue by Segment
Breaks down IBM’s sales across its various divisions, showcasing which segments are growing and contributing most to overall revenue.
Breaks down IBM’s sales across its various divisions, showcasing which segments are growing and contributing most to overall revenue.
Data provided by:
The Fly
The FlyInternational Business Machines Earnings Call Summary
Earnings Call Date:Jan 28, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:Apr 22, 2026
Earnings Call Sentiment Positive
The call highlights strong execution and momentum across IBM’s software-led transformation with multiple record metrics (notably revenue growth, software acceleration, margin expansion, and free cash flow). Significant progress in GenAI, IBM Z, ARR growth, productivity savings, and disciplined M&A amplify the positive outlook and underpin confident 2026 guidance. Notable near-term challenges include Red Hat deceleration, federal booking delays, product-cycle impacts in infrastructure, and expected short-term dilution from Confluent along with memory pricing/headwinds. Overall, the positive operating and financial momentum materially outweighs the manageable near-term headwinds.Q4-2025 Updates
Positive Updates
Strong Full-Year Revenue and Cash Generation
Revenue grew 6% in 2025 (highest level in many years) and IBM generated $14.7 billion of free cash flow (highest in over a decade), representing 16% year-over-year free cash flow growth and the highest free cash flow margin in reported history.
Margin and Profitability Expansion
Operating pretax margin expanded ~100 basis points for the year, adjusted EBITDA grew 17% YoY, operating gross profit margin expanded 170 bps, adjusted EBITDA margin expanded 230 bps, and operating pretax margin expanded 100 bps — reflecting significant margin expansion across the business.
Software-Led Momentum
Software represented ~45% of revenue, grew 9% for the year (highest annual growth in company history) and accelerated to 11% in Q4; ARR was strong at $23.6 billion (up >$2 billion YoY) with organic growth accelerating to over 7% and three of four software sub-segments delivering double-digit growth.
Data and Automation Outperformance
In Q4, Data grew 19% and Automation grew 14%, driven by GenAI demand, platform traction, and strong bookings (including record bookings for HashiCorp).
Mainframe (IBM Z) Strength
IBM Z had an outstanding year with Z17 driving momentum: infrastructure revenue grew 17% in Q4, hybrid infrastructure up 24%, IBM Z revenue up 61% year-over-year in Q4 and Z achieved its highest annual revenue in ~20 years; Z17 processes ~50% more AI inferencing operations per day than Z16.
GenAI Adoption and Book of Business
Cumulative GenAI book of business exceeded $12.5 billion (software >$2B, consulting >$10.5B) with the largest quarterly increase to date; consulting GenAI bookings grew meaningfully and consulting GenAI backlog penetration is >25%.
Productivity Gains and Capital Allocation
IBM exited 2025 with $4.5 billion of annual run-rate productivity savings (well ahead of earlier $2B goal), expects incremental $1B savings in 2026 to reach $5.5B run-rate, and continues disciplined M&A (HashiCorp accretive to EBITDA earlier than expected) while returning capital (returned $6.3B to shareholders).
Guidance and Forward Outlook
Management guides to sustaining 5%+ revenue growth in 2026, expects software to grow ~10% in 2026, operating pretax margin to expand ~1 point, and free cash flow to increase by about $1 billion (to ~$15.7B).
Innovation & Strategic Tech Progress
Progress in quantum (deployed first 120-qubit Nighthawk system for clients), Project Bob reported ~45% developer productivity gains among 20,000+ IBM users, and new partnerships (AMD, Anthropic, AWS, Microsoft, OpenAI, Oracle, NVIDIA & Red Hat) support hybrid AI strategy.
Negative Updates
Red Hat Deceleration and Federal Deal Delay Impact
Red Hat growth decelerated to 8% in Q4 (partly due to wrap of last year's elevated consumption-based services and delays in U.S. federal bookings related to the government shutdown), with Red Hat Linux at mid-single-digit growth versus prior higher expectations.
Consulting Signings and Modest Revenue Growth
Consulting revenue grew only 1% in Q4 and overall signings were down vs. the prior year's record levels; ACV bookings were single-digit in Q4 impacted by federal delays, creating near-term softness in signings despite a healthy backlog ($32B).
Near-Term Dilution from Confluent and Prior M&A
IBM expects approximately $600 million of dilution from the Confluent acquisition in 2026 (driven largely by stock-based compensation and interest expense) and had absorbed >$300 million of dilution from HashiCorp in 2025; Confluent is expected to be accretive to adjusted EBITDA in first full year and free cash flow in year two.
Infrastructure Outlook and Product Cycle Headwinds
Management expects infrastructure revenue to be down low-single-digits in 2026 due to product cycle dynamics (about a half-point impact to IBM), distributed infrastructure was flat and infrastructure support declined 2% in Q4.
Cost and Balance Sheet Pressures
Higher CapEx, cash taxes, and net interest expense are expected to partially offset adjusted EBITDA growth; year-end debt was $61.3 billion (including $15.1B financing business), representing leverage that is being managed but notable in absolute terms.
Memory Pricing and Server Supply Dynamics
Spot DRAM prices and elevated demand for HBM (AI server memory) are driving memory pricing volatility and could pressure server refresh cycles; management expects these dynamics to persist for at least a couple of years and could create headwinds in parts of the infrastructure and Linux server markets.
Company Guidance
IBM guided to sustain 5%+ constant‑currency revenue growth in 2026 with free cash flow up about $1.0 billion to roughly $15.7 billion, driven primarily by high‑single‑digit adjusted EBITDA growth; they expect software to accelerate to ~10% growth (ARR about $23.6B, organic >7%), consulting to grow low‑ to mid‑single digits (backlog ~$32B, GenAI backlog penetration >25%, consulting GenAI book >$2B this quarter), and infrastructure to be down low‑single digits (≈‑0.5 point impact to IBM) despite continued Z momentum. Management expects operating pretax margin expansion of ~100 basis points for the year (Q1 ~100 bps), an operating tax rate in the mid‑teens, and noted ~ $600M of 2026 dilution from the announced Confluent deal (Confluent accretive to adjusted EBITDA in year one and to free cash flow in year two, with ~$500M run‑rate operational synergies by 2027). They also cited productivity targets—exiting 2025 at $4.5B annual run‑rate savings and targeting $5.5B by 2026 (including an incremental $1B this year)—and reaffirmed near‑term cadence: Q1 revenue growth similar to the full year and continued margin/profitability tailwinds.International Business Machines Financial Statement Overview
Summary
Strong profitability recovery and healthy margins (TTM gross margin ~58%, net margin ~12.1%) supported by solid cash generation (TTM OCF/FCF ~$13.2B; FCF-to-net-income ~0.97). The main constraint is elevated leverage (debt-to-equity ~2.39; total debt ~64.6B vs equity ~32.6B), which reduces flexibility despite strong ROE.Income Statement
IBM shows steady top-line momentum, with revenue up ~3.3% in TTM (Trailing-Twelve-Months) versus low-single-digit growth in recent annual periods. Profitability is solid and improving: TTM gross margin is ~58% and net margin is ~12.1%, a meaningful recovery from the weak 2022 net margin (~2.7%). EBIT and EBITDA margins in TTM (~17.4% and ~24.8%) indicate healthy operating leverage, although profitability has been somewhat uneven year-to-year (notably the 2022 dip).78
Positive
Balance Sheet
The balance sheet is workable but leverage remains the key constraint. TTM total debt (~$64.6B) is high relative to equity (~$32.6B), with debt-to-equity at ~2.39 (still elevated despite improvement versus some prior years). Returns on equity are strong in TTM (~28.9%), but that strength is amplified by leverage, which increases financial risk and reduces flexibility if operating conditions weaken.60
Neutral
Cash Flow
Cash generation is a clear support for the story: TTM operating cash flow and free cash flow are both about ~$13.2B, and free cash flow is closely aligned with net income (TTM free cash flow to net income ~0.97), suggesting earnings quality is solid. Free cash flow growth is positive in TTM (~1.18%), though recent annual results show some volatility (including a modest decline in 2024). Cash flow covers a meaningful portion of the debt load (TTM operating cash flow to total debt ~0.38), but leverage still limits how quickly the balance sheet can de-risk.74
Positive
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 67.53B | 62.75B | 61.86B | 60.53B | 57.35B |
| Gross Profit | 40.19B | 35.55B | 34.30B | 32.69B | 31.49B |
| EBITDA | 17.28B | 12.18B | 14.69B | 7.17B | 12.41B |
| Net Income | 10.59B | 6.02B | 7.50B | 1.64B | 5.74B |
Balance Sheet | |||||
| Total Assets | 151.88B | 137.18B | 135.24B | 127.24B | 132.00B |
| Cash, Cash Equivalents and Short-Term Investments | 14.47B | 14.59B | 13.44B | 8.74B | 7.25B |
| Total Debt | 67.15B | 58.40B | 59.94B | 54.01B | 55.14B |
| Total Liabilities | 119.14B | 109.78B | 112.63B | 105.22B | 113.00B |
| Stockholders Equity | 32.65B | 27.31B | 22.53B | 21.94B | 18.90B |
Cash Flow | |||||
| Free Cash Flow | 11.57B | 11.76B | 12.12B | 8.46B | 10.03B |
| Operating Cash Flow | 13.19B | 13.45B | 13.93B | 10.44B | 12.80B |
| Investing Cash Flow | -10.30B | -4.94B | -7.07B | -4.20B | -5.97B |
| Financing Cash Flow | -3.83B | -7.08B | -1.77B | -4.96B | -13.35B |
International Business Machines Technical Analysis
Neutral
256.11
Price Trends
274.79
Negative
288.33
Negative
276.56
Negative
Market Momentum
-6.23
Negative
48.90
Neutral
49.23
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For IBM, the sentiment is Neutral. The current price of 256.11 is above the 20-day moving average (MA) of 247.42, below the 50-day MA of 274.79, and below the 200-day MA of 276.56, indicating a neutral trend. The MACD of -6.23 indicates Negative momentum. The RSI at 48.90 is Neutral, neither overbought nor oversold. The STOCH value of 49.23 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for IBM.
International Business Machines Risk Analysis
International Business Machines disclosed 25 risk factors in its most recent earnings report. International Business Machines reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
International Business Machines Peers Comparison
UnderperformOutperform
Sector (61)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
80 Outperform | $54.08B | 24.55 | 29.68% | 2.58% | 4.62% | 1.06% | |
73 Outperform | $122.24B | 18.02 | 24.98% | 2.25% | 6.58% | 1.19% | |
70 Outperform | $240.24B | 26.07 | 36.86% | 2.21% | 4.51% | 21.89% | |
68 Neutral | $29.33B | 17.90 | 14.84% | 1.46% | 7.44% | -4.57% | |
67 Neutral | $21.68B | 21.25 | 15.49% | 2.78% | -1.97% | 48.61% | |
61 Neutral | $37.18B | 12.37 | -10.20% | 1.83% | 8.50% | -7.62% |
* Technology Sector Average
IBM
International Business Machines
256.11
9.94
4.04%
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198.66
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CTSH
Cognizant
61.32
-16.94
-21.65%
INFY
Infosys
13.20
-4.91
-27.13%
WIT
Wipro
2.22
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Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.