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Revenue near the upper FY2027 estimate of $75.37 billion, EPS near $13.86, stronger free cash flow, and falling debt could extend earnings growth beyond the near-term window.
Annual consolidated revenue growth below 2.5% for two consecutive fiscal years.
Hold IBM. The report-date price of $234.89 sits above Fair value of $223.86, while Potential value is $420.12.3
The main risk is annual revenue growth below 2.5% for two consecutive fiscal years. That would weaken profit leverage and leave debt competing more heavily with dividends and reinvestment.
The strongest support is FY2025 cash generation. Operating cash flow was $13.19 billion and free cash flow was $12.10 billion, helping fund dividends and debt service.56
Demand-led upside requires IBM to deliver the FY2026 and FY2027 revenue expectations while preserving margins. That would support earnings growth and weaken the services-pricing concern.1
Hold because strong cash generation is offset by a report-date price above Fair value, material debt, and limited visibility after FY2027.3
Hold because strong cash generation is offset by a report-date price above Fair value, material debt, and limited visibility after FY2027.3
Consulting integrates strategy, experience design, technology and operations expertise by domain across industries to deliver transformation for clients. Consulting operates in a highly competitive, dynamic market that spans business consulting, systems integration, application development and management, and business process outsourcing services. Its competitors include global firms such as Accenture, Capgemini, India-based service providers, management consulting firms, the consulting practices of public accounting firms, engineering service providers, and niche specialists. IBM is a globally integrated enterprise that participates in a highly competitive environment. Its competitors vary by industry segment, and range from large multinational enterprises to smaller, more narrowly focused entities.
Across its business segments, the company recognizes hundreds of competitors worldwide and as the company executes its hybrid cloud and AI strategy, the company is regularly exposed to new competitors. The depth, breadth, and innovation of its software offerings, coupled with its global reach, deep industry expertise and research capabilities help differentiate its offerings from its competitors. Its hybrid cloud and AI platforms allow clients to realize their digital and AI transformations across the applications, data, and environments in which they operate.
Under this stress, debt absorbs more cash, reinvestment falls and investors pay less for each dollar of future earnings.
IBM has no evidenced structural moat in the admissible record. Strong cash generation is an outcome, not proof of switching costs, integration advantages, distribution strength, installed-base lock-in, or scale benefits. Those mechanisms were not established here.
The record does not provide a cited structural-moat mechanism. Cash generation and margins should therefore be treated as operating results, not protected economic profit.
None of the valuation methods used to calculate Fair value relies on a separate assumption about how long the competitive advantage lasts.
The highlighted cell is Fair value when every assumption sits at its base level ($223.86). Each row and column shows what Fair value becomes when one assumption moves.
Free cash flow to the firm stays positive in the first projected year at $14.5B after modeled capex of $1.1B, with terminal value at 63.7% of . A sudden drop in free cash flow is not projected unless capital spending relative to , reinvestment, or resets materially.
A beat matters only if sales, earnings, cash generation and debt reduction improve together.
The industry reference shows capital spending at 2.9% of revenue and capital spending at 0.35 times depreciation, as of 2026-09-01.
Demand-led upside requires IBM to deliver the FY2026 and FY2027 revenue expectations while preserving margins. That would support earnings growth and weaken the services-pricing concern.
A demand slowdown or pricing pressure that pushes annual revenue growth below 2.5% for two fiscal years would reduce profit leverage and shorten the growth period.
Maintain the existing allocation; do not increase it at the report-date price. The report-date price exceeds Fair value, while cash strength is offset by debt and limited visibility after FY2027.3
Keep the position unchanged and use revenue growth, operating cash conversion, and debt as the decision points. Do not average up above Fair value.
FY2025 free cash flow supports dividend capacity, but debt competes for the same cash.35
The report-date price is above Fair value, although Potential value preserves upside if operating delivery strengthens.3
Near-term growth is modest, and dated revenue and EPS support extends only through FY2027.
Hold IBM. Fair value is $223.86 versus the $234.89 report-date price, while Potential value is $420.12.3
Strong cash generation supports the income case, but debt, modest growth, and limited evidence after FY2027 cap the case for adding shares.
Capture your own thesis, position size, and follow-up questions. Stays on this device, only you can see it.
The records this analysis drew on, as they stood when it was run.
Repeated weak growth, lower operating leverage and softer cash generation would confirm this path.
If consolidated revenue growth stays below 2.5% for two fiscal years, margin leverage fades and the post-FY2027 growth period shortens.
A two-percentage-point increase above the 7.9539% cost of equity and 7.2431% WACC would reduce long-dated cash-flow values, with debt adding pressure.23
An NTM forward P/E below 14x within 24 months would show that low growth and limited visibility outweigh dividend support.3
The five developments that would weaken our investment case.
A breach would remove expected operating leverage and shorten the earnings-growth period after FY2027, weakening revenue, profit and cash value.
Current:The expected path is 4.22% in FY2026 and 4.00% in FY2027.
Alert ifBelow 2.5% for two consecutive fiscal years
Less cash behind reported profit would weaken dividend coverage, debt-reduction capacity and funds available for reinvestment.
Current:FY2025 produced $1.25 of operating cash for each $1.00 of reported profit.
Alert ifAt or below $0.80 of operating cash for each $1.00 of reported profit
Persistent leverage would leave less cash for reinvestment, dividends and repurchases when operating conditions soften.
Current:FY2025 total debt was $67.15 billion.
Alert ifAt or above $67.15 billion in FY2028 while free cash flow weakens
Investors would be paying less for each dollar of expected earnings, showing weaker belief in growth duration and estimate delivery.
Current:NTM forward P/E was 17.64x on 2026-09-08.
Alert ifBelow 14x within 24 months
Faster dilution would spread company-wide earnings across more shares, lowering earnings and value per share despite stable total profit.
Current:FY2025 diluted average shares were 948.675 million.
Alert ifFY2027 growth exceeds the approximately 1.43% annual FY2023-FY2025 pace
| Threat | Severity | Timeline | Mitigation |
|---|---|---|---|
| Services pricing pressure could slow sales and weaken margins. | high | Over two fiscal years | Sustained annual revenue growth at or above 4.22% with stable margins would reduce this concern.1 |
| Debt can restrict reinvestment and shareholder returns if cash generation weakens. | high | Through FY2028 | Debt below the FY2025 balance, alongside positive free cash flow and supported dividends, would improve flexibility.3 |
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Convert the revenue and margin path into after-tax free cash flow, discount the annual per-share amounts and at , then adjust for signed per current share.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Discount the explicit dividend path and its Gordon-growth terminal value at cost of equity.
Limitation: Terminal value is 77.7% of this model's value, above the 60% level at which the methodology flags concentration; the value leans on the years beyond the explicit forecast.
Solve for the growth rate that makes the model value equal the report-date share price.
This path requires modest sales growth and stable margins. Weaker cash generation or estimate delivery would disconfirm it.15
Sustained estimate delivery and dated support beyond FY2027 would keep upside alive. Weaker estimates or cash generation would disconfirm it.
Weaker sales and cash generation would undermine dividend support and increase debt pressure.
FY2025 operating cash exceeded reported net income and free cash flow stayed positive. Material debt makes persistence important for dividends and debt service.356
Growth supports profit leverage and longer earnings duration.
Operating cash funds dividends, debt service and reinvestment.6
Lower debt would release cash for reinvestment and shareholder returns.3
Rising shares reduce earnings and value per share.6
| $57.35B |
| $60.53B |
| $61.86B |
| $62.75B |
| $67.54B |
| +4.2% |
| Gross profit | $31.49B | $32.69B | $34.30B | $35.55B | $39.30B | +5.7% |
| Operating income | $7.02B | $2.37B | $7.51B | $7.51B | $12.26B | +15.0% |
| Net income | $5.74B | $1.64B | $7.50B | $6.02B | $10.59B | +16.5% |
| EPS (diluted) | $6.35 | $1.80 | $8.14 | $6.43 | $11.17 | +15.2% |
| EBITDA | $13.44B | $7.17B | $7.51B | $12.18B | $17.28B | +6.5% |
| R&D | $6.49B | $6.57B | $6.78B | $7.48B | $8.32B | +6.4% |
| SG&A | $18.75B | $18.61B | $19.00B | $19.69B | $20.12B | +1.8% |
FY2025 operating cash exceeded net income and capital spending was $1.09 billion. This supports dividend capacity, but it does not prove that future growth requires no added investment.6
Free cash must serve debt, dividends, reinvestment, and repurchases. Debt reduction below the FY2025 balance, while free cash remains positive, would improve flexibility.
The admissible record does not provide a dated, comparable return-on-invested-capital series. No trajectory should be inferred.
A cited company return-on-invested-capital comparison with the 7.2431% WACC is unavailable; economic-spread direction remains unestablished.
FY2025 operating cash flow was $13.19 billion and free cash flow was $12.10 billion.
Cash can support dividends, debt service, and selective reinvestment if conversion persists.
FY2025 debt was $67.15 billion versus $13.59 billion of cash.
A cash-flow decline could crowd out reinvestment or shareholder returns.
Diluted average shares rose from 922.074 million in FY2023 to 948.675 million in FY2025.
Company-wide earnings growth may not translate fully into earnings per share.
| Revenue | $17,162,000,000 |
|---|---|
| Cost of revenue | $7,255,000,000 |
| Gross profit | $9,907,000,000 |
| Operating expenses | $7,292,000,000 |
| Operating income | $2,615,000,000 |
| Non-operating items and tax | -$450,000,000 |
| Net income | $2,165,000,000 |
| Total assets | $151,880,000,000 |
|---|---|
| Cash | $13,587,000,000 |
| Current assets | $36,944,000,000 |
| Total liabilities | $119,139,000,000 |
| Current liabilities | $38,658,000,000 |
| Shareholders’ equity | $32,740,000,000 |
| Net income | $10,593,000,000 |
|---|---|
| Operating inflow | $17,329,000,000 |
| Depreciation and amortization | $5,021,000,000 |
| Stock-based compensation | $1,715,000,000 |
| Operating cash flow | $13,193,000,000 |
| Operating outflow | $4,136,000,000 |
| Cash available | $27,771,000,000 |
| Beginning cash | $14,160,000,000 |
| Exchange-rate effect | $418,000,000 |
| Investing outflow | $10,302,000,000 |
| Capex | $1,091,000,000 |
| Other investing activities | $9,211,000,000 |
| Financing outflow | $3,829,000,000 |
| Ending cash | $13,640,000,000 |
| Investing cash flow | -$10,302,000,000 |
| Financing cash flow | -$3,829,000,000 |
Point-in-time financial data used in the 2026-09-08 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016-12-31 | $79.9B | $17.3B | $11.9B | $17.1B | $13.5B | $3.6B | $4.4B | $544M | $3.5B | $5.3B | — | -$10.9B | -$5.9B | — | $8.1B | $8.5B | $40.9B | 18.4% | — | — | — |
| 2017-12-31 | $79.1B | $16.6B | $5.8B | $16.7B | $13.5B | $3.2B | $4.5B | $534M | $4.3B | $5.5B | — | -$7.1B | -$6.4B | $8.1B | $12.2B | $12.6B | $45.1B | 16.6% | — | — | — |
| 2018-12-31 | $79.6B | $16.5B | $8.7B | $15.2B | $11.9B | $3.4B | $4.5B | $510M | $4.4B | $5.7B | — | -$4.9B | -$10.5B | $12.2B | $11.6B | $12B | $42.7B | 16.6% | — | — | — |
| 2019-12-31 | $57.7B | $14.6B | $9.4B | $14.8B | $12.5B | $2.3B | $6.1B | $679M | $1.4B | $5.7B | — | -$26.9B | $9B | $11.6B | $8.3B | $8.9B | $64.3B | 13.1% | — | — | — |
| 2020-12-31 | $55.2B | $12.7B | $5.6B | $18.2B | $15.6B | $2.6B | $6.7B | $937M | — | $5.8B | — | -$3B | -$9.7B | $8.3B | $13.7B | $13.8B | $62.9B | 12.5% | — | — | — |
| 2021-12-31 | $57.4B | $13.4B | $5.7B | $12.8B | $10.7B | $2.1B | $6.4B | $982M | — | $5.9B | — | -$6B | -$13.4B | $13.7B | $7B | $7.3B | $55.1B | 11.9% | — | 3.9% | — |
| 2022-12-31 | $60.5B | $7.2B | $1.6B | $10.4B | $9.1B | $1.3B | $4.8B | $987M | $407M | $5.9B | $1.2B | -$4.2B | -$5B | $7B | $8B | $8.7B | $54B | 13.5% | — | 6.2% | — |
| 2023-12-31 | $61.9B | $7.5B | $7.5B | $13.9B | $12.7B | $1.2B | $4.4B | $1.1B | $402M | $6B | $4.5B | -$7.1B | -$1.8B | $8B | $13.1B | $13.4B | $59.9B | 12.1% | — | 5.6% | — |
| 2024-12-31 | $62.8B | $12.2B | $6B | $13.4B | $12.4B | $1B | $4.7B | $1.3B | $651M | $6.1B | -$880M | -$4.9B | -$7.1B | $13.1B | $14.2B | $14.6B | $58.4B | 16.1% | — | 6.8% | — |
| 2025-12-31 | $67.5B | $17.3B | $10.6B | $13.2B | $12.1B | $1.1B | $5B | $1.7B | $1B | $6.3B | $2.9B | -$10.3B | -$3.8B | $14.2B | $13.6B | $14.4B | $67.2B | 18.5% | — | 6.9% | — |
International Business Machines Corporation (IBM) trades at 17.6x forward earnings against a peer median of 19.3x. Its EV/EBITDA of 16.9x compares with a peer median of 20.4x. The comparison uses 4 peers: Accenture plc, Texas Instruments Incorporated, QUALCOMM Incorporated and Analog Devices Inc., as of 2026-09-07 to 2026-09-08.
| Impact |
|---|
| Note |
|---|
| Enterprise services demand | neutral | Near-term estimates support modest growth, but dated evidence extends only through FY2027. |
| Services competition | negative | The closest services comparison has faster FY+1 growth and a lower forward multiple, creating pricing and valuation pressure. |
IBM enters this cycle with strong FY2025 cash generation but material debt. That supports resilience while limiting flexibility if demand weakens.35
| Why |
|---|
| At or below Fair value | Hold rather than add until annual revenue growth remains at or above 4.22% with stable margins. | Sustained delivery would weaken the services-pricing concern and extend growth visibility. |
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
Limitation: Terminal value is 63.7% of this model's value, above the 60% level at which the methodology flags concentration; the value leans on the years beyond the explicit forecast.
| TXN |
| Texas Instruments Incorporated |
| 24.3x |
| 12.1x |
| 25.5x |
| 35.2% |
| 42.6% |
| QCOM | QUALCOMM Incorporated | 16.5x | 4.1x | 15.4x | 33.8% | 18.5% |
| ADI | Analog Devices Inc. | 22.2x | 12.6x | 26.3x | 12.2% | 39.5% |
