IBM
INTERNATIONAL BUSINESS MACHINES CORPNYSEValuation snapshot
Above bull casePrice is above even the bull case.
Price as of Aug 17, 2026 · Valuation Aug 16, 2026
What drives IBM's base case?
base-case thesisIBM's strong prior-year growth slowed in the latest quarter, but management still expects a healthier full-year pace. Red Hat, Data and distributed systems provide growth while mature software, Consulting and mainframes limit the upside. A growing Software mix and company-wide productivity keep profitability near its recent adjusted level.
What shapes the assumptions
Management's updated full-year outlook
Expected 2026 growth of roughly four to five percent
Raises revenue growth
Growing Software mix
Software grew about five percent in the latest quarter
Raises operating margin
Stagnant Consulting
Consulting was approximately flat in the latest quarter
Lowers revenue growth
Sustained innovation spending
Research spending exceeded eight billion dollars in 2025
Raises reinvestment
Each driver links a business metric to the forecast assumption it shapes — the basis for this case, not investment advice.
Why the gap?
The market is pricing this as if revenue grows 13.0% a year. Over the last 5 years it grew 8.1% a year — so the price assumes more than it has delivered.
What else could explain it?›
- Or, holding growth steady
- the price is also consistent with a 27.9% operating margin, against the 19.0% assumed here.
- How confident is this estimate?
- Robustness 47.0/10 (Moderate) — some of any gap is our own uncertainty rather than disagreement.
- What would change the answer?
- Which assumption this valuation swings on, and by how much.
Many combinations of assumptions reproduce the same price. These are ways to read what the market might be expecting, not the market's actual view. How this is worked out
Research & assumptions
Inspect the valuation thesis, cases, risks, evidence, and model inputs.
View details
Research & assumptions
Inspect the valuation thesis, cases, risks, evidence, and model inputs.
Three independently researched cases generated automatically from published financials. Every assumption is justified and cited; the discount rate is computed from researched market inputs.
Base inputs from financials
source period →Base revenue (TTM)
$69.1B
Diluted shares
953,263,534
Net cash
-$49B
Bear
low confidence$81.09
IV / share
-65.4% vs $234.32
- Explicit cash flows
- $29.97
- Terminal value
- $102.56
- Net cash
- -$51.44
- Intrinsic value / share
- $81.09
126.5% of the value rests on the terminal value — high dependency. A small change to terminal growth moves the valuation a lot — see terminal growth below.
bear revenue growth (avg 2%) runs well above the trailing -14% trend
Revenue growth2.5% → 2.0% → 1.8% → 1.5% → 1.2%medium
How derived: IBM's latest quarter grew only 0.011 and Infrastructure declined 0.074, so this path assumes management's 2026 outlook is not sustained as weak Consulting and cyclical hardware offset Software.
Why this confidence: Latest reported segment results ↑, Five-year demand uncertainty ↓
Evidence for
- Second-quarter revenue grew 0.011, while Consulting was nearly flat and Infrastructure declined 0.074.[IBM 2Q26 results]· primary
Evidence against
- IBM still expects 2026 constant-currency revenue growth of 0.04 to 0.05, supported by Red Hat, Data, Power and Storage.[IBM 2Q26 results]· primary
Operating margin17.0%medium
How derived: IBM's adjusted pre-tax profitability was 0.188 in 2025 and 0.192 in the latest quarter, but this case reduces the sustainable level for weaker scale, acquisition costs and unfavorable segment mix.
Why this confidence: Current profitability disclosures ↑, Acquisition and product-mix uncertainty ↓
Evidence for
- Second-quarter GAAP pre-tax profitability declined by 0.009, and Software and Infrastructure gross profitability also declined.[IBM 2Q26 results]· primary
Evidence against
- IBM reported adjusted pre-tax profitability of 0.192 in the second quarter and said productivity should improve full-year profitability.[IBM 2Q26 results]· primary
Tax rate18.0%medium
How derived: Management expected a mid-teens normalized rate after unusual audit benefits, and this case adds a cushion for geographic mix, global minimum taxes and fewer discrete benefits.
Why this confidence: Management's near-term tax outlook ↑, Tax settlements and geographic mix ↓
Evidence for
- IBM says its tax provision varies with tax-law changes, audit settlements and the geographic mix of earnings.[IBM 2025 Form 10-K]· primary
Evidence against
- IBM's normalized 2025 tax rate was 0.135 and management expected a mid-teens rate for 2026.[IBM 2025 Form 10-K]· primary
Reinvestment rate32.0%low
How derived: IBM spent 0.123 of 2025 revenue on research, completed 8.3 billion dollars of acquisitions and plans more than 10 billion dollars of quantum investment, so this case assumes substantial cash reinvestment produces only modest growth.
Why this confidence: Audited investment and cash-flow data ↑, Acquisitions make normalized reinvestment difficult to measure ↓
Evidence for
- IBM reported 8.316 billion dollars of 2025 research spending, 8.3 billion dollars of acquisitions and 1.6 billion dollars of net capital spending.[IBM 2025 Form 10-K]· primary
Evidence against
- IBM generated 14.7 billion dollars of free cash flow in 2025 and expects it to increase by about 1 billion dollars in 2026 despite higher investment.[IBM 2Q26 results]· primary
Terminal growth1.5%low
How derived: The Federal Reserve's 0.02 long-run inflation objective provides the nominal anchor, but this case assumes IBM loses modest real share as mature Consulting and Infrastructure offset Software.
Why this confidence: Authoritative long-run inflation anchor ↑, Forecast extends indefinitely ↓
Evidence for
- IBM's latest quarter grew only 0.011, with flat Consulting and declining Infrastructure.[IBM 2Q26 results]· primary
Evidence against
- The Federal Reserve maintains a 0.02 long-run inflation objective, while IBM continues to report faster growth in several AI and hybrid-cloud products.[Federal Reserve inflation objective]· primary
Base
low confidence$142.84
IV / share
-39.0% vs $234.32
- Explicit cash flows
- $39.38
- Terminal value
- $154.90
- Net cash
- -$51.44
- Intrinsic value / share
- $142.84
108.4% of the value rests on the terminal value — high dependency. A small change to terminal growth moves the valuation a lot — see terminal growth below.
base revenue growth (avg 4%) runs well above the trailing -14% trend
Revenue growth4.5% → 4.5% → 4.0% → 3.5% → 3.0%medium
How derived: The first year uses the midpoint of IBM's 0.04-to-0.05 constant-currency outlook, followed by gradual moderation as Software growth is diluted by slower Consulting and cyclical Infrastructure.
Why this confidence: Explicit current-year management outlook ↑, Guidance covers only the first forecast year ↓
Evidence for
- IBM expects 2026 constant-currency revenue growth between 0.04 and 0.05, with currency neutral.[IBM 2Q26 results]· primary
Evidence against
- Second-quarter growth slowed to 0.011, and Transaction Processing and IBM Z declined 0.08 and 0.42, respectively.[IBM 2Q26 results]· primary
Operating margin19.0%medium
How derived: The target holds close to IBM's 0.188 adjusted 2025 pre-tax level and 0.192 latest-quarter level as productivity and Software mix offset acquisition amortization and investment.
Why this confidence: Two recent reported profitability reference points ↑, Difference between adjusted and GAAP results ↓
Evidence for
- Adjusted pre-tax profitability was 0.188 in 2025 and 0.192 in the second quarter of 2026.[IBM 2025 Form 10-K]· primary
Evidence against
- Latest-quarter gross profitability declined 0.01 on a reported basis, including weaker Software and Infrastructure results.[IBM 2Q26 results]· primary
Tax rate15.5%medium
How derived: The assumption uses the middle of management's mid-teens 2026 expectation rather than IBM's unusually low reported 2025 rate, which benefited from tax-audit resolutions.
Why this confidence: Direct management guidance ↑, Future audit and geographic-mix effects ↓
Evidence for
- Management said the 2026 tax rate should be in the mid-teens.[IBM 4Q25 prepared remarks]· primary
Evidence against
- IBM's normalized 2025 tax rate was 0.135, while its reported rate was reduced further by audit resolutions.[IBM 2025 Form 10-K]· primary
Reinvestment rate27.0%low
How derived: IBM's research, capital spending and acquisition program demonstrates meaningful reinvestment, but its 14.7 billion dollars of 2025 free cash flow supports a moderate rate relative to after-tax operating profit.
Why this confidence: Detailed audited cash-investment disclosures ↑, Research is expensed and acquisitions are irregular ↓
Evidence for
- IBM invested 8.316 billion dollars in research, 1.6 billion dollars in net capital spending and 8.3 billion dollars in acquisitions during 2025.[IBM 2025 Form 10-K]· primary
Evidence against
- IBM expects 2026 free cash flow to rise by about 1 billion dollars, suggesting productivity can fund growth without proportionate incremental capital.[IBM 2Q26 results]· primary
Terminal growth2.0%low
How derived: The rate equals the Federal Reserve's 0.02 long-run inflation objective, assuming IBM roughly maintains its real competitive position after the explicit forecast.
Why this confidence: Stable policy inflation anchor ↑, Indefinite competitive-position assumption ↓
Evidence for
- The Federal Reserve identifies 0.02 inflation as its longer-run objective.[Federal Reserve inflation objective]· primary
Evidence against
- IBM's latest results show material product-cycle volatility, including a 0.42 decline in IBM Z and a 0.37 increase in Distributed Infrastructure.[IBM 2Q26 results]· primary
Bull
low confidence$219.01
IV / share
-6.5% vs $234.32
- Explicit cash flows
- $49.00
- Terminal value
- $221.46
- Net cash
- -$51.44
- Intrinsic value / share
- $219.01
101.1% of the value rests on the terminal value — high dependency. A small change to terminal growth moves the valuation a lot — see terminal growth below.
bull revenue growth (avg 5%) runs well above the trailing -14% trend
Revenue growth6.0% → 6.0% → 5.5% → 5.0% → 4.5%low
How derived: This path assumes Red Hat, Data, watsonx and distributed systems extend their latest double-digit gains, restoring IBM near its 2025 growth rate before growth gradually moderates.
Why this confidence: Several reported double-digit product growth rates ↑, Forecast exceeds current company guidance ↓
Evidence for
- In the latest quarter Red Hat grew 0.11, Data grew 0.19 and Distributed Infrastructure grew 0.37.[IBM 2Q26 results]· primary
Evidence against
- IBM reduced its 2026 outlook to 0.04-to-0.05 growth after second-quarter company revenue increased only 0.011.[IBM 2Q26 results]· primary
Operating margin21.0%low
How derived: Starting from the latest adjusted pre-tax level of 0.192, this case adds scale, a richer Software mix and AI-enabled productivity while retaining room for growth investment.
Why this confidence: High-profit Software mix ↑, Required improvement above recent company results ↓
Evidence for
- Software produced a 0.322 segment profit rate in the latest quarter, and management is using AI and automation to raise productivity.[IBM 2Q26 results]· primary
Evidence against
- Second-quarter reported gross profitability declined 0.01, including a 0.013 decline in Software gross profitability.[IBM 2Q26 results]· primary
Tax rate13.5%medium
How derived: The assumption matches IBM's normalized 2025 tax rate, presuming its international earnings mix and tax incentives persist without relying on the year's exceptional audit-resolution benefit.
Why this confidence: Two years of similar normalized rates ↑, Below management's current-year expectation ↓
Evidence for
- IBM's adjusted effective tax rate was 0.135 in 2025 and 0.136 in 2024.[IBM 2025 Form 10-K]· primary
Evidence against
- Management expected the 2026 rate to be in the mid-teens, above this assumption.[IBM 4Q25 prepared remarks]· primary
Reinvestment rate23.0%low
How derived: Although IBM continues substantial research and quantum investment, this case assumes reusable software, productivity gains and high returns from acquired platforms let faster growth require less incremental capital per dollar of profit.
Why this confidence: Strong current free-cash-flow conversion ↑, Unproven returns from quantum and recent acquisitions ↓
Evidence for
- IBM generated 14.7 billion dollars of free cash flow in 2025 and expects about 1 billion dollars of additional free cash flow in 2026.[IBM 2Q26 results]· primary
Evidence against
- IBM plans to invest more than 10 billion dollars in quantum over five years after spending 8.316 billion dollars on research in 2025.[IBM 2Q26 results]· primary
Terminal growth2.5%low
How derived: The rate combines the Federal Reserve's 0.02 inflation objective with modest real growth from IBM retaining a durable position in enterprise AI, hybrid cloud and mission-critical infrastructure.
Why this confidence: Durable enterprise platforms and recurring Software ↑, Perpetual real-growth assumption ↓
Evidence for
- IBM reports continued strong growth in Red Hat, Data, Power and Storage and describes enterprise AI adoption as moving toward scaled deployment.[IBM 2Q26 results]· primary
Evidence against
- A 0.025 perpetual rate exceeds the Federal Reserve's 0.02 inflation objective and assumes IBM maintains positive real growth indefinitely.[Federal Reserve inflation objective]· primary
Valuation robustness
reliability of the estimate, not a stock rating47 / 100 · Moderate
Formula v1.0.0. Higher means a more reliable estimate — not a recommendation.
Quality checks
Automated model-risk flags — warnings, not recommendations.
- 108% of the intrinsic value rests on the terminal value — a small change to terminal growth moves the valuation a lot.→ terminal growth
- The reinvestment assumption is low-confidence.→ reinvestment
- The terminal growth assumption is low-confidence.→ terminal growth
Per-share economics
Business growth after changes in the diluted share count.
| Period | Revenue growth | FCF/share | FCF/share growth | Shares | Share growth |
|---|---|---|---|---|---|
| Q3 2024 | 1.5% | 2.81 | -6.5% | 923.58M | -0.0% |
| Q1 2025 | 0.5% | 4.36 | 3.7% | 945.37M | 1.3% |
| Q2 2025 | 7.7% | 1.57 | -20.4% | 947.96M | 1.5% |
| Q3 2025 | 9.1% | 2.98 | 6.0% | 948.93M | 2.7% |
| Q1 2026 | 9.5% | 5.19 | 18.8% | 952.13M | 0.7% |
| Q2 2026 | 1.1% | 2.48 | 57.9% | 953.26M | 0.6% |
Valuation history every run
History builds as the valuation is recalculated — this is the first recorded run.
Market inputs researched
This is the trailing-earnings-and-adjusted-payout implied U.S. equity risk premium dated 2026-08-01.
This is IBM's documented NYSE closing price on 2026-07-28, the latest closing observation available in the cited historical dataset.
Generated 8/16/2026, 5:07:55 AM · pipeline v1.1.0