International Business Machines (IBM) has spent years trying to convince investors that it deserves a new label.
For Wall Street, IBM long looked like a legacy hardware and consulting company with limited upside. As IBM shifts deeper into higher-margin software, AI infrastructure, and free cash flow, it becomes increasingly difficult to justify that perspective.
Bank of America Global Research now anticipates that shift gaining momentum.
The brokerage reaffirmed its buy rating on IBM and boosted its price target to $330 from $315. That suggests there’s around 14% upside from IBM’s $289.52 pricing on July 6, according to the research note.
The headline number counts, but behind that is the greater investor tale.
BofA expects IBM to have a good fiscal second quarter and slightly raise its fiscal 2026 guidance, thanks to better software trends, Red Hat performance, Confluent integration, and stronger transaction-processing demand related to the z17 mainframe cycle.
That alone makes IBM more than just an earnings preview story.
IBM’s blend of software may be giving investors a stronger reason to think less of the business as a slow-growing technology name and more as a resilient cash-flow compounder with artificial intelligence upside.
“IBM is mixing up higher-margin software, driving strong free cash flow, and optionality from quantum,” BofA wrote.
IBM’s software business is changing the stock debate
For IBM’s comeback, the mix has always been crucial.
Not all segments need to grow quickly for the organization. It needs to make software a bigger part of the business because software has better margins, greater recurring revenue, and more strategic value than legacy hardware.
The trend is expected to show up again in the second quarter, BofA said.
IBM’s software revenue for the June quarter is $8.26 billion, up 11.8% from a year ago. It also forecasts software revenue growth of 11.3% in constant currency.
That would make software expand faster than the corporation as a whole at IBM.
BofA expects overall second-quarter sales to be $18.0 billion, up 6% from a year ago, and non-GAAP earnings of $3.05 a share. It also expects IBM to report free cash flow of $3.36 billion for the quarter, an increase of 18.1% from the year-ago period.
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There are many moving aspects to the software tale.
Red Hat is still the basic engine and is expected to expand 10% in constant currency in the second quarter, helped by stronger consumption and bookings, BofA said.
Automation must also be resilient. BofA sees 11% constant-currency growth in the second quarter before declining later in the year as IBM laps HashiCorp-related advantages.
The biggest gain from data should go to Confluent. BofA expects Confluent to add roughly $340 million in the second quarter, or about 5% of software growth.
That’s important because Confluent gives IBM a more powerful data streaming asset at a time when enterprises demand cleaner, quicker data pipelines to power AI applications.
BofA sees IBM guidance moving higher
BofA’s call is not based on just one quarter.
The company anticipates IBM improving fiscal 2026 expectations somewhat on sales and free cash flow. It boosted its fiscal 2026 sales estimate to $71.4 billion from $71.1 billion and its earnings projection to $12.47 per share from $12.10.
BofA also raised its 2027 earnings projection to $13.02 from $12.67 and its 2028 prediction to $14.06 from $13.64.
Those estimate increases bolster the greater price aim.
BofA now values IBM at 21 times its anticipated enterprise value to free cash flow for calendar 2027, which equates to the new $330 target.
Its second-quarter model gives a reason why it feels there is justification for confidence. BofA sees IBM’s non-GAAP operating income at $3.9 billion, up 7.1% from the prior year. It also forecasts an operating margin of 21.7% and a pre-tax income margin of 19.3%.
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The full-year model for IBM also suggests improving profitability.
BofA sees gross margin at 60% in fiscal 2026, up 52 basis points year over year. It estimates an operating margin of 21.7%, up 78 basis points, and a pre-tax income margin of 19.7%, up 89 basis points.
That’s the part investors need to watch.
IBM doesn’t need explosive growth for the stock to work. It requires consistent revenue growth, improved margins, and sufficient free cash flow to fund dividends, investments, and acquisitions.
BofA expects IBM to generate $15.77 billion in free cash flow in fiscal 2026, up 7% from a year earlier.
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IBM still has weak spots investors need to watch
IBM’s setup looks better, but it’s not pretty across the board.
The most obvious pressure point remains infrastructure. BofA sees IBM’s infrastructure sales down 1.5% in constant currency in the second quarter and down 2.1% for fiscal 2026. The corporation cites a challenging comparison from the z17 mainframe launch cycle.
That is a drag on the entire story. But BofA also sees upside potential from demand for power and storage as firms construct infrastructure for AI workloads. That could help alleviate some weakness from the z17 comparison.
Consulting remains a slow-growth business.
BofA expects consulting revenue growth of 1.5% in the second quarter and 1.7% for fiscal 2026 in constant currency. It fits a low single-digit growth profile but doesn’t have the same upside as software.
IBM stock key takeaways
- BofA Global Research reiterated its buy rating on IBM.
- The firm raised its IBM price objective to $330 from $315.
- BofA expects IBM to report fiscal second-quarter revenue of $18.0 billion and earnings of $3.05 a share.
- The firm expects IBM to raise fiscal 2026 guidance modestly.
- Software remains the key driver, with BofA modeling 11.8% second-quarter software revenue growth.
- Red Hat, Confluent, and transaction processing should support stronger software trends.
- Infrastructure remains a risk as IBM laps the z17 mainframe cycle.
- BofA sees IBM generating $15.77 billion in free cash flow in fiscal 2026.
The concern is that IBM’s software gains won’t outweigh deterioration elsewhere.
If Red Hat slows, Confluent synergies take longer to materialize or infrastructure drops more than projected, investors would ask whether IBM deserves a higher multiple.
Some optimism is also already priced in the stock.
IBM is trading at around 23 times BofA’s fiscal 2026 earnings forecast and 20.4 times its fiscal 2028 projection. That valuation doesn’t look extreme against faster-growing software names, although it does require IBM to continue to prove its mix shift can hold up.
IBM’s next test is proving software can carry the story
BofA’s increased price target is a clear statement.
IBM’s tale is no longer about whether the corporation can escape its legacy image but whether software can continue to move the business ahead.
Red Hat guides IBM to hybrid cloud success. Confluent is a better data platform. The z17 cycle could increase transaction processing. As company dollars go into AI infrastructure, power and storage might benefit.
Those pieces don’t make IBM a high-growth cloud play. They become a more focused technological company with stronger margins and a clearer route to cash flow growth, and that difference matters for investors.
IBM doesn’t need to be the next Nvidia (NVDA) to work. It must continue to evolve into software, defend its margins, and demonstrate that its AI and data assets can support sustainable enterprise demand.
BofA believes that is happening. The earnings report on July 22 will be the next proving point for investors.
If IBM lifts its forecast and software trends improve as BofA expects, Wall Street may have to keep reconsidering what kind of stock IBM has become.
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