IBM (IBM) reported a strong Q4 earnings report on January 28, and the stock closed 5.13% higher on the next day, according to Yahoo Finance.
Investors reacted more positively to Q4 earnings than they did in Q3, which was also a strong earnings report. I covered Q3 in my article “Bank of America revamps IBM stock price after earnings.”
“Back in 2024, we predicted that we’d see quantum advantage by the end of 2026, and with the help of IBM hardware, software, and rapid cycles of learning, our partners in the scientific computing community are starting to make the first credible advantage claims,” said IBM CEO Arvind Krishna during the earnings call.
“We remain on track to deliver the first large-scale, fault-tolerant quantum computer by 2029.”
Q4 2025 highlights:
- Revenue of $19.7 billion, up 12% year over year
- Gross profit margin of 60.6%, up 110 basis points YoY
- Net income of $5.6 billion, up 91% YoY
- Diluted earnings per share (EPS) of $5.86, up 88% YoY
Full-year 2025 highlights:
- Revenue of $67.5 billion, up 8% YoY
- Gross profit margin of 58.2%, up 150 basis points YoY
- Net cash from operating activities of $13.2 billion
- Free cash flow (FCF) of $14.7 billion
- Net income of 10.6 billion, up 76% YoY
Full-year 2026 outlook:
- Full-year constant currency revenue growth of more than 5%
- Full-year free cash flow to increase by about $1 billion YoY
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Bank of America raises IBM price target
Bank of America analyst Wamsi Mohan and his team updated their opinions on IBM stock after earnings.
Analysts noted that IBM reported another overall beat on topline, driven by upside in infrastructure, improving Transaction Processing, and solid growth in data. They said that despite $300 million of workforce rebalancing charges in Q4, IBM delivered pre-tax income margin expansion of approximately 100bps for the year.
Related: Bank of America resets Amazon stock price target before earnings
Mohan noted that Automation decelerated from a very strong Q3 but is expected to grow double digits again in 2026. He said Consulting revenues are expected to grow in the low to mid-single digits in 2026, driven by strength in AI and lower backlog erosion.
Analysts estimate FCF of $15.7 billion in fiscal year 2026 (approximately in line with IBM’s guidance). They also estimate fiscal year 2026 revenue and EPS of $71.0 billion and $12.20, respectively.
In a research note shared with me, Mohan reiterated a buy rating for IBM stock, and raised the target price from $335 to $340, based on 23 multiple his estimate for the enterprise value to FCF ratio for calendar year 2027.
“Our target multiple for IBM exceeds the high end of the historical range 8-22x, with median 13x,” he wrote. “We believe a multiple at the high end/exceeding the historical range is justified given the company’s improving growth and FCF trajectory with Red Hat.”
According to the team, downside risks for IBM are:
- Failure to execute on the company’s growth roadmap
- Inability to realize expected cost savings from restructuring
- Technology/competitor risk in hardware, software, and services
- Unforeseen currency impacts on revenue and profits
- Acquisition integration, given IBM’s acquisitive nature
- Increased concern of economic uncertainty and tightening corporate IT
budgets
Upside risks to our price objective are:
- Faster re-acceleration of topline
- Faster improvement in margins
- Better-than-expected accretion from M&A
- Delivery of upside to FCF
IBM recent activity
Global technology group e& and IBM announced a strategic partnership. e& and IBM have introduced an agentic AI solution built on IBM watsonx Orchestrate.
IBM’s Client Engineering team led the design and integration of the agentic AI solution, with GBM (Gulf Business Machines) supporting delivery.
“Our ambition is to move beyond isolated AI use cases toward enterprise-scale agentic AI that is trusted, governed, and deeply integrated into how the organization operates,” said Hatem Dowidar, Group CEO, e&.
The deployment demonstrates the flexibility of IBM’s AI and model gateway approach, enabling large language models to run across hybrid environments, including customer-managed infrastructure, while remaining under enterprise controls.
More AI Stocks:
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- Bank of America updates Palantir stock forecast after private meeting
- Morgan Stanley drops eye-popping Broadcom price target
- Nvidia’s China chip problem isn’t what most investors think
- Bank of America sets AI stocks to buy list for 2026
IBM announced IBM Enterprise Advantage, an asset-based consulting service that combines AI tools and expertise to help clients quickly build, govern, and operate their own custom internal AI platform at scale.
According to the company, organizations can now use IBM Enterprise Advantage to redesign workflows, connect AI to existing systems, and scale new agentic applications without requiring changes to their cloud providers, AI models, or core infrastructure.
“Many organizations are investing in AI, but achieving real value at scale remains a major challenge,” said Mohamad Ali, senior vice president and head of IBM Consulting. “We have solved many of these challenges inside IBM by using AI to transform our own operations and deliver measurable results, giving us a proven playbook to help clients succeed.
“Enterprise Advantage brings this framework to clients by combining human expertise with digital workers and ready-to-use AI assets so they can scale AI with confidence and achieve meaningful impact.”
IBM announced IBM Sovereign Core, an AI-ready sovereign-enabled software for enterprises, governments, and service providers to build, deploy, and manage AI-ready sovereign environments.
“Businesses are facing growing pressure to innovate while meeting tightening regulatory requirements and recognizing the importance of controlling how sensitive data and AI workloads are accessed and operated,” said Priya Srinivasan, general manager, IBM Software Products.
According to the company, IBM Sovereign Core will help customers achieve verifiable sovereignty and full operational control.
Related: Bank of America resets Meta stock price target after earnings
