Bank of America analysts have reiterated a constructive view on International Business Machines Corp (NYSE:IBM) following the company’s first-quarter results, which delivered a modest revenue and earnings beat but prompted a more nuanced read-through on underlying software momentum and margin trends.
Bank of America maintained its “Buy” rating on IBM, with a price objective of $300, based on a valuation framework tied to 20 times projected 2027 free cash flow. Shares traded down 8% at about $232.
IBM reported first quarter revenue and earnings per share ahead of consensus expectations, supported primarily by strength in its infrastructure segment and lower-than-expected operating expenses.
The bank’s analysts noted that the upside to EPS was largely driven by reductions in SG&A and a favorable contribution from other income and expense items.
Despite the beat, Bank of America characterized the overall reaction as tempered, citing mixed signals within software and consulting performance.
Management reaffirmed its full-year fiscal 2026 outlook, including expectations for more than 5% constant-currency revenue growth and $1 billion in free cash flow, a stance Bank of America viewed as broadly steady given ongoing artificial intelligence-related uncertainty in parts of the market narrative.
A key focus of the report was IBM’s software segment, where guidance was modestly raised to above 10% constant-currency growth. This revision reflected early contributions from the Confluent acquisition as well as stronger-than-expected performance in data products. However, Bank of America highlighted that organic software growth slowed quarter-on-quarter, with deceleration particularly visible in automation and transaction processing areas.
In consulting, the bank pointed to margin compression of 43 basis points year-on-year, noting that this may continue to attract investor scrutiny amid broader concerns about AI-driven disruption to services demand. While IBM’s signings returned to growth during the quarter, Bank of America suggested that profitability trends in this segment remain an area to monitor.
On infrastructure, analysts described the performance as a relative positive, with strength in mainframe-related activity helping offset broader cyclical headwinds. The bank also highlighted ongoing productivity initiatives and cost savings targets, which it estimates are tracking toward a multi-billion-dollar run rate.
The analysts modestly adjusted its fiscal 2026 estimates upward, reflecting the Q1 beat, while keeping its broader investment thesis unchanged. It continues to see IBM’s mix shift toward higher-margin software, stable free cash flow generation, and optional upside from emerging technologies such as quantum computing as key longer-term supports.
While acknowledging areas of concern, including slowing organic software growth and limited upward revision to full-year guidance, the bank concluded that IBM’s overall positioning remains balanced, with execution in cost discipline and cash generation offsetting near-term volatility in parts of the portfolio.