IBM Targets $15.7B Free Cash Flow by 2026, Analysts See Upside
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 17 hours ago
0mins
Should l Buy IBM?
Source: seekingalpha
- Free Cash Flow Outlook: During its latest earnings call, IBM guided for a free cash flow target of $15.7 billion by 2026, with analysts believing this target is not only achievable but potentially beatable.
- Revenue Growth Drivers: Evercore analysts project that IBM's net income, starting from last year's $14.7 billion, will grow by approximately $800-900 million, while deferred revenue from software growth is expected to add around $200-300 million, further boosting free cash flow.
- Stock-Based Compensation Impact: With the growth in software business, stock-based compensation is anticipated to contribute about $200-300 million; although this is not an add-back for IBM's adjusted net income, it will positively impact free cash flow.
- Acquisition Impact: Evercore noted that the $11 billion proposed acquisition of Confluent has already been reflected in the year-over-year change to net income, with the deal expected to close by mid-year, further strengthening IBM's market position.
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Analyst Views on IBM
Wall Street analysts forecast IBM stock price to rise
16 Analyst Rating
11 Buy
4 Hold
1 Sell
Moderate Buy
Current: 262.380
Low
210.00
Averages
315.80
High
375.00
Current: 262.380
Low
210.00
Averages
315.80
High
375.00
About IBM
International Business Machines Corporation is a provider of global hybrid cloud and artificial intelligence (AI) and consulting expertise. The Company’s segments include Software, Consulting, Infrastructure and Financing. The Software segment includes hybrid cloud and AI platforms, which allow clients to realize their digital and AI transformations across the applications, data, and environments in which they operate. The Consulting segment focuses on integrating skills on strategy, experience, technology and operations by domain and industry. The Infrastructure segment is focused on the hybrid cloud infrastructure market, providing on-premises and cloud-based server and storage solutions. In addition, it offers a portfolio of life-cycle services for hybrid cloud infrastructure deployment. The Financing segment provides client and commercial financing, facilitating its clients’ acquisition of hardware, software and services. It helps clients in more than 175 countries.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
IBM Targets $15.7B Free Cash Flow by 2026, Analysts See Upside
- Free Cash Flow Outlook: During its latest earnings call, IBM guided for a free cash flow target of $15.7 billion by 2026, with analysts believing this target is not only achievable but potentially beatable.
- Revenue Growth Drivers: Evercore analysts project that IBM's net income, starting from last year's $14.7 billion, will grow by approximately $800-900 million, while deferred revenue from software growth is expected to add around $200-300 million, further boosting free cash flow.
- Stock-Based Compensation Impact: With the growth in software business, stock-based compensation is anticipated to contribute about $200-300 million; although this is not an add-back for IBM's adjusted net income, it will positively impact free cash flow.
- Acquisition Impact: Evercore noted that the $11 billion proposed acquisition of Confluent has already been reflected in the year-over-year change to net income, with the deal expected to close by mid-year, further strengthening IBM's market position.
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IBM Shares Plunge 12.2% Amid Tech Selloff and Rising Yields
- Significant Stock Decline: IBM's stock fell 12.2% last week, reaching a five-month low and marking its steepest weekly decline in nearly six years, reflecting heightened investor concerns over technology stocks amid rising Treasury yields.
- Market Sentiment Shift: Despite an upbeat earnings report from IBM last month and generally positive results from major tech firms, the sector faced a sharp selloff, with the Nasdaq 100 declining 2.1% for the fifth consecutive week, indicating a broader profit-taking trend.
- Acquisition Plans and Growth Outlook: IBM's recent $11 billion acquisition of cloud company Confluent and rapid growth in its AI business, along with a forecast for 2026 revenue exceeding analyst expectations, position the company as a long-term investment opportunity despite short-term stock price declines.
- Divergent Analyst Opinions: Among 21 analysts covering IBM, 11 recommend 'Buy' or higher, 7 suggest 'Hold', and 3 advise 'Sell', with an average price target of $324.95 indicating a potential 24% upside, highlighting the mixed sentiment regarding IBM's future prospects.
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- Revenue vs. Market Cap: Quantum Computing Inc. generated only approximately $546,000 in revenue over the past 12 months, while its market capitalization stands at $1.87 billion, indicating a severe disconnect that could undermine investor confidence.
- High R&D Spending: The company spends tens of millions annually on development, and while it has $555 million in cash reserves, the ongoing high expenditures could erode financial stability and impact future growth prospects.
- Equity Dilution Risk: Over the past year, the company issued more than $840 million in additional common stock to fill funding gaps, which raises concerns about significant shareholder dilution and the market's perception of its future financing capabilities.
- Management Trust Issues: The management frequently makes exaggerated claims that lack substantial backing, leading to skepticism about the sustainability of its contracts, primarily consisting of one-off research grants, which further heightens investor concerns about future performance.
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- Quantum Computing Market Potential: IonQ aims to develop systems with over 1 million qubits, which would provide a significant technological advantage in the quantum computing field, attracting investor interest in its future growth potential.
- Alphabet's Financial Strength: With over $400 billion in revenue over the past 12 months, Alphabet leverages its strong financial resources and over a decade of quantum computing R&D experience, making it a key player in the quantum computing sector.
- IBM's SDK Leadership: IBM's quantum computing software development kit (SDK) has been downloaded over 13 million times, showcasing its leadership in quantum computing software, even as hardware competition continues.
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- Price Range Analysis: The IYW ETF has a 52-week low of $117.55 and a high of $211.98, with the last trade at $191.41, indicating significant volatility over the past year, which investors should monitor to inform their investment strategies.
- Technical Analysis Tool: Comparing the current share price to the 200-day moving average can provide valuable insights for investors, helping to identify potential buying or selling opportunities to optimize investment decisions.
- ETF Trading Mechanism: ETFs trade like stocks, where investors are buying and selling 'units' that can be created or destroyed based on investor demand, reflecting changes in market interest in the ETF.
- Liquidity Monitoring: Weekly monitoring of changes in shares outstanding helps track notable inflows or outflows, where inflows necessitate purchasing underlying assets, while outflows may lead to selling, impacting the performance of individual components within the ETF.
See More
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- AI Risk Warning: Noted short seller Jim Chanos warns that IBM's AI strategy poses risks, asserting that the company operates more as a marketing and consulting firm rather than a technology leader, highlighting its 'India-centric body shop model' as a potential hindrance to future growth.
- Software Division Growth: IBM's software division saw a 14% revenue increase to $9 billion, driven by recent software acquisitions; Chanos pointed out that these acquisitions are not adequately reflected in the free cash flow definition, which may affect investor perceptions.
- Market Reaction: Despite strong earnings, IBM's stock fell approximately 4.8% during Thursday's trading session, reflecting market concerns over AI risks, particularly following Kyndryl Holdings' review of its accounting practices, leading to a cautious investor sentiment.
See More
IBM Targets $15.7B Free Cash Flow by 2026, Analysts See Upside
- Free Cash Flow Outlook: During its latest earnings call, IBM guided for a free cash flow target of $15.7 billion by 2026, with analysts believing this target is not only achievable but potentially beatable.
- Revenue Growth Drivers: Evercore analysts project that IBM's net income, starting from last year's $14.7 billion, will grow by approximately $800-900 million, while deferred revenue from software growth is expected to add around $200-300 million, further boosting free cash flow.
- Stock-Based Compensation Impact: With the growth in software business, stock-based compensation is anticipated to contribute about $200-300 million; although this is not an add-back for IBM's adjusted net income, it will positively impact free cash flow.
- Acquisition Impact: Evercore noted that the $11 billion proposed acquisition of Confluent has already been reflected in the year-over-year change to net income, with the deal expected to close by mid-year, further strengthening IBM's market position.
See More
IBM Shares Plunge 12.2% Amid Tech Selloff and Rising Yields
- Significant Stock Decline: IBM's stock fell 12.2% last week, reaching a five-month low and marking its steepest weekly decline in nearly six years, reflecting heightened investor concerns over technology stocks amid rising Treasury yields.
- Market Sentiment Shift: Despite an upbeat earnings report from IBM last month and generally positive results from major tech firms, the sector faced a sharp selloff, with the Nasdaq 100 declining 2.1% for the fifth consecutive week, indicating a broader profit-taking trend.
- Acquisition Plans and Growth Outlook: IBM's recent $11 billion acquisition of cloud company Confluent and rapid growth in its AI business, along with a forecast for 2026 revenue exceeding analyst expectations, position the company as a long-term investment opportunity despite short-term stock price declines.
- Divergent Analyst Opinions: Among 21 analysts covering IBM, 11 recommend 'Buy' or higher, 7 suggest 'Hold', and 3 advise 'Sell', with an average price target of $324.95 indicating a potential 24% upside, highlighting the mixed sentiment regarding IBM's future prospects.
See More
Quantum Computing Inc. Faces Significant Financial Risks
- Revenue vs. Market Cap: Quantum Computing Inc. generated only approximately $546,000 in revenue over the past 12 months, while its market capitalization stands at $1.87 billion, indicating a severe disconnect that could undermine investor confidence.
- High R&D Spending: The company spends tens of millions annually on development, and while it has $555 million in cash reserves, the ongoing high expenditures could erode financial stability and impact future growth prospects.
- Equity Dilution Risk: Over the past year, the company issued more than $840 million in additional common stock to fill funding gaps, which raises concerns about significant shareholder dilution and the market's perception of its future financing capabilities.
- Management Trust Issues: The management frequently makes exaggerated claims that lack substantial backing, leading to skepticism about the sustainability of its contracts, primarily consisting of one-off research grants, which further heightens investor concerns about future performance.
See More
Investment Opportunities in Quantum Computing
- IonQ's Technological Edge: IonQ is acquiring SkyWater Technology, which is expected to position it as a leader in quantum computing hardware manufacturing, thereby accelerating hardware iteration and enhancing market competitiveness.
- Quantum Computing Market Potential: IonQ aims to develop systems with over 1 million qubits, which would provide a significant technological advantage in the quantum computing field, attracting investor interest in its future growth potential.
- Alphabet's Financial Strength: With over $400 billion in revenue over the past 12 months, Alphabet leverages its strong financial resources and over a decade of quantum computing R&D experience, making it a key player in the quantum computing sector.
- IBM's SDK Leadership: IBM's quantum computing software development kit (SDK) has been downloaded over 13 million times, showcasing its leadership in quantum computing software, even as hardware competition continues.
See More
IYW ETF 52-Week Price Fluctuation Analysis
- Price Range Analysis: The IYW ETF has a 52-week low of $117.55 and a high of $211.98, with the last trade at $191.41, indicating significant volatility over the past year, which investors should monitor to inform their investment strategies.
- Technical Analysis Tool: Comparing the current share price to the 200-day moving average can provide valuable insights for investors, helping to identify potential buying or selling opportunities to optimize investment decisions.
- ETF Trading Mechanism: ETFs trade like stocks, where investors are buying and selling 'units' that can be created or destroyed based on investor demand, reflecting changes in market interest in the ETF.
- Liquidity Monitoring: Weekly monitoring of changes in shares outstanding helps track notable inflows or outflows, where inflows necessitate purchasing underlying assets, while outflows may lead to selling, impacting the performance of individual components within the ETF.
See More
IBM Reports Strong Earnings Amid AI Risk Concerns
- Strong Earnings: IBM's latest quarterly report reveals a 12% revenue growth to $19.7 billion, surpassing Wall Street's expectations of $19.23 billion, with adjusted earnings per share at $4.52, exceeding the anticipated $4.32, indicating robust performance in software and AI sectors.
- AI Risk Warning: Noted short seller Jim Chanos warns that IBM's AI strategy poses risks, asserting that the company operates more as a marketing and consulting firm rather than a technology leader, highlighting its 'India-centric body shop model' as a potential hindrance to future growth.
- Software Division Growth: IBM's software division saw a 14% revenue increase to $9 billion, driven by recent software acquisitions; Chanos pointed out that these acquisitions are not adequately reflected in the free cash flow definition, which may affect investor perceptions.
- Market Reaction: Despite strong earnings, IBM's stock fell approximately 4.8% during Thursday's trading session, reflecting market concerns over AI risks, particularly following Kyndryl Holdings' review of its accounting practices, leading to a cautious investor sentiment.
See More
