International Business Machines (IBM) AI Stock Analysis

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International Business Machines

(NYSE:IBM)

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Outperform 71 (OpenAI - 5.2)

Rating:71Outperform

Price Target:

$325.00

▲(10.60% Upside)

The score is driven primarily by strong financial performance (high margins and solid cash generation) and supportive earnings-call guidance (FCF growth and margin expansion outlook). Offsetting factors are weak-to-neutral technical momentum and a relatively high valuation (P/E 35.44), with balance-sheet leverage adding additional risk.

Positive Factors

Revenue Growth

IBM's significant revenue growth indicates strong market demand and effective business strategies, particularly in AI and hybrid cloud, supporting long-term expansion.

Free Cash Flow

Robust free cash flow generation enhances IBM's financial flexibility, enabling strategic investments and debt management, supporting sustainable growth.

Strategic Acquisition

The acquisition of Confluent is expected to drive product synergies and accelerate revenue growth, enhancing IBM's competitive position in AI and data streaming.

Negative Factors

High Leverage

High leverage poses risks to IBM's financial stability, potentially limiting its ability to invest in growth opportunities or weather economic downturns.

Red Hat Growth Challenges

Challenges in Red Hat growth could hinder IBM's expansion in cloud services, affecting its ability to capitalize on the growing demand for cloud solutions.

Decline in Transaction Processing Revenue

A decline in transaction processing revenue indicates potential vulnerabilities in IBM's hardware segment, which could impact overall revenue stability.

International Business Machines (IBM) vs. SPDR S&P 500 ETF (SPY)

Market Cap

$276.99B

Dividend Yield2.21%

Average Volume (3M)3.69M

Price to Earnings (P/E)35.4

Beta (1Y)0.68

Revenue Growth4.51%

EPS Growth21.89%

CountryUS

Employees270,300

SectorTechnology

Sector Strength88

IndustryInformation Technology Services

Share Statistics

EPS (TTM)4.52

Shares Outstanding934,735,200

10 Day Avg. Volume4,256,491

30 Day Avg. Volume3,694,513

Financial Highlights & Ratios

PEG Ratio-1.66

Price to Book (P/B)7.54

Price to Sales (P/S)3.28

P/FCF Ratio17.52

Enterprise Value/Market Cap1.19

Enterprise Value/Revenue5.05

Enterprise Value/Gross Profit8.67

Enterprise Value/Ebitda20.35

Forecast

1Y Price Target

$321.27

Price Target Upside9.33% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering16

EPS Forecast (FY)N/A

Revenue Forecast (FY)N/A

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 generates revenue through multiple streams, primarily consisting of cloud services, software, and consulting services. The company's cloud computing segment, which includes IBM Cloud and Red Hat, has become a significant source of revenue as businesses increasingly shift to cloud-based solutions. Additionally, IBM's software offerings, particularly in analytics, security, and AI, contribute a substantial portion of its earnings. Consulting services, which encompass IT strategy, implementation, and managed services, also play a crucial role in IBM's revenue model. The company has formed strategic partnerships with organizations such as Salesforce and SAP to enhance its service offerings and expand its market reach. Moreover, IBM invests in research and development to drive innovation, which further strengthens its competitive edge and revenue potential.

International Business Machines Key Performance Indicators (KPIs)

Any

Annual Recurring Revenue

Annual Recurring Revenue
Shows the steady income IBM earns from subscription-based services, highlighting business stability and customer retention.

Chart InsightsIBM's Annual Recurring Revenue (ARR) has surged significantly, reaching $22.7 billion, driven by strong performance in software and infrastructure, particularly with the new z17 mainframe. This growth aligns with IBM's strategic focus on AI and hybrid cloud, as evidenced by their $7.5 billion GenAI book of business. Despite challenges in consulting and transaction processing revenues, the company's increased free cash flow guidance and robust ARR growth highlight its resilience and strategic momentum in key technology areas.

Data provided by:

The Fly

International Business Machines Earnings Call Summary

Earnings Call Date:Jan 28, 2026

(Q4-2025)

Next Earnings Date:Apr 29, 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 and operating efficiency (58.16% gross margin; 17.39% EBIT margin) plus solid cash generation (free cash flow growth 10.42%; operating cash flow to net income 1.71). The main offset is balance-sheet leverage (debt-to-equity 2.39), which raises risk despite strong ROE (28.86%).

Income Statement

Very Positive

IBM's income statement shows strong profitability with a gross profit margin of 58.16% and a net profit margin of 12.09% for the TTM (Trailing-Twelve-Months). The company has demonstrated consistent revenue growth, with a 2.13% increase in the latest period. EBIT and EBITDA margins are healthy at 17.39% and 24.79%, respectively, indicating efficient operations. The company has maintained a positive revenue growth trajectory over the years, reflecting robust business performance.

Balance Sheet

Positive

IBM's balance sheet reveals a high debt-to-equity ratio of 2.39, which suggests significant leverage. However, the return on equity is strong at 28.86%, indicating effective use of equity to generate profits. The equity ratio stands at 19.07%, reflecting a moderate level of equity financing. While the company is leveraging debt effectively, the high leverage poses potential risks if not managed carefully.

Cash Flow

Positive

The cash flow statement indicates a solid free cash flow growth rate of 10.42% in the TTM, showcasing IBM's ability to generate cash. The operating cash flow to net income ratio is 1.71, and the free cash flow to net income ratio is 0.97, both suggesting strong cash generation relative to net income. The company has shown resilience in maintaining positive cash flow growth, which supports its financial stability.

Breakdown	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	65.40B	62.75B	61.86B	60.53B	57.35B	55.18B
Gross Profit	38.04B	35.55B	34.30B	32.69B	31.49B	30.86B
EBITDA	16.21B	12.18B	14.69B	7.17B	12.41B	10.55B
Net Income	7.91B	6.02B	7.50B	1.64B	5.74B	5.59B
Balance Sheet
Total Assets	146.31B	137.18B	135.24B	127.24B	132.00B	155.97B
Cash, Cash Equivalents and Short-Term Investments	14.86B	14.59B	13.44B	8.74B	7.25B	13.81B
Total Debt	66.57B	58.40B	59.94B	54.01B	55.14B	65.09B
Total Liabilities	118.32B	109.78B	112.63B	105.22B	113.00B	135.25B
Stockholders Equity	27.91B	27.31B	22.53B	21.94B	18.90B	20.60B
Cash Flow
Free Cash Flow	13.04B	11.76B	12.12B	8.46B	10.03B	14.97B
Operating Cash Flow	13.48B	13.45B	13.93B	10.44B	12.80B	18.20B
Investing Cash Flow	-13.10B	-4.94B	-7.07B	-4.20B	-5.97B	-3.03B
Financing Cash Flow	-2.10B	-7.08B	-1.77B	-4.96B	-13.35B	-9.72B

International Business Machines Technical Analysis

Technical Analysis Sentiment

Neutral

Last Price293.86

Price Trends

50DMA

301.93

Negative

100DMA

292.03

Positive

200DMA

274.67

Positive

Market Momentum

MACD

-2.08

Positive

RSI

45.31

Neutral

STOCH

19.45

Positive

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 293.86 is below the 20-day moving average (MA) of 299.54, below the 50-day MA of 301.93, and above the 200-day MA of 274.67, indicating a neutral trend. The MACD of -2.08 indicates Positive momentum. The RSI at 45.31 is Neutral, neither overbought nor oversold. The STOCH value of 19.45 is Positive, 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

Overall Rating

UnderperformOutperform

Sector (61)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
INFY	80 Outperform	$75.86B	23.90	32.85%	2.58%	4.62%	1.06%
CTSH	79 Outperform	$41.32B	19.85	14.50%	1.46%	7.44%	-4.57%
ACN	77 Outperform	$172.72B	23.21	25.35%	2.25%	6.58%	1.19%
IBM	71 Outperform	$276.99B	35.44	30.25%	2.21%	4.51%	21.89%
WIT	67 Neutral	―	17.94	15.81%	2.78%	-1.97%	48.61%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%

* Technology Sector Average

Performance Comparison

IBM

International Business Machines

293.86

70.99

31.85%

ACN

Accenture

275.80

-90.38

-24.68%

CTSH

Cognizant

84.65

4.75

5.94%

INFY

Infosys

18.25

-2.92

-13.79%

WIT

Wipro

2.61

-0.92

-26.15%

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.Date of analysis: Jan 29, 2026