European stocks mixed on Friday after volatile week; U.K. economic woes
Investing.com -- Oppenheimer has initiated coverage of International Business Machines with an Outperform rating in a note to clients on Friday, arguing that the company’s shift toward software and artificial intelligence positions it for a period of sustained revenue and margin expansion.
The brokerage set a 12- to 18-month price target of $360, which it said is “based on 5.2x our 2027 EV/sales estimate.”
Analyst Param Singh wrote that Oppenheimer’s bullish stance reflects confidence in the trajectory of IBM’s software operations, noting that the portfolio should deliver sustained double-digit revenue growth.
Oppenheimer stated that this momentum will be “driven by strength in Automation (primarily HashiCorp) and improving growth in RedHat,” two areas it sees as core to IBM’s transformation into a higher-margin software-centric company.
The firm added that consulting activity should expand at a steady, low single-digit pace as demand recovers in application development and management.
The note also cites further upside from IBM’s position in artificial intelligence. Oppenheimer highlighted “additional revenue optionality with creation and management of AI applications (incl. Generative AI),” arguing that the company stands to benefit as enterprise clients accelerate the deployment of AI tools across their operations.
These factors, the analyst said, should lead to “strong expansion activity with existing customers,” supporting continued gross margin improvement as software becomes a larger share of the business.
Oppenheimer also expects pre-tax margins to rise, underpinned by IBM’s product mix shift and operating leverage.
Singh wrote that the stock could command a higher valuation as investors better recognise the extent of IBM’s transition. According to the note, “The stock should also re-rate higher when IBM’s pivot to software is more widely appreciated.”