Goldman Sachs Analyst Upgrades IBM with a Bullish Outlook

IBM Upgraded with a Bullish Outlook by Goldman Sachs Analyst

On Monday, Goldman Sachs analyst James Schneider initiated coverage on IBM, assigning a Buy rating and a $200 price target, approximately 16% above Friday’s closing price. Following this announcement, IBM shares rose 3.3% to $178.18 in midmorning trading. The stock has gained 8% this year and 36% over the past 12 months, reflecting investor confidence in the company’s strategic direction.

Broader IT Sector Analysis

Schneider’s analysis included a Buy rating and $200 price target for Globant (GLOB), with a 1.91% share price increase. Conversely, Thoughtworks and TaskUS received Sell ratings. Accenture (ACN), Cognizant (CTSH), EPAM Systems (EPAM), and Softchoice got Neutral ratings. This recommendation was part of a broader launch covering eight IT services companies.

The analyst noted a 16% decrease in the companies he covers this year. This decline stems from reduced IT spending. Macroeconomic pressures and budget reallocations towards AI-focused investments instead of traditional software and services are the main factors.

Reduced IT spending due to macro pressures redirects budgets towards AI, impacting traditional software negatively, according to WSJ Subscription Offers.

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Positive Long-Term Outlook on IBM

Regarding IBM, Schneider opined that the company is “on track to successfully complete its pivot to long-term growth.” He attributes this to a better mix of infrastructure software centered on open-source and AI, along with a “uniquely complementary consulting business” that is decisively capturing market share.

Schneider wrote, “We believe the stock can continue to re-rate higher as the software business mix improves.” He also mentioned that the company demonstrates consistent financial performance. He projects IBM to achieve long-term revenue growth of 5% to 7%. Free cash flow growth of about 10% is expected, driven by AI advancements, consulting market share gains, and software portfolio growth.

Future Valuation Expectations

The analyst anticipates IBM’s forward price-to-earnings ratio to increase to 18 times or higher. This is up from the 9 to 13 range before 2020, and around 16.6 times recently. The positive outlook from Goldman Sachs suggests strong future performance for IBM in the evolving IT landscape.

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