Wall Street Sees 28% Upside Potential in IBM Stock

Investment firm Oppenheimer has upgraded IBM (International Business Machines Corporation) to an "Outperform" rating, setting a price target of $320 per share. This represents a potential upside of 28%, as analysts highlight IBM's transition into the world's third-largest infrastructure software provider, trailing only Microsoft and Amazon.

According to Oppenheimer analyst Singh, IBM is expected to achieve double-digit revenue growth in its software segment, with Red Hat playing a crucial role in this expansion. Acquired by IBM in 2019, Red Hat provides open-source software solutions that enable enterprises to run and manage AI-driven workloads.

Investment firm Oppenheimer has upgraded IBM (International Business Machines Corporation) to an "Outperform" rating, setting a price target of $320 per share. This represents a potential upside of 28%, as analysts highlight IBM's transition into the world's third-largest infrastructure software provider, trailing only Microsoft and Amazon.

According to Oppenheimer analyst Singh, IBM is expected to achieve double-digit revenue growth in its software segment, with Red Hat playing a crucial role in this expansion. Acquired by IBM in 2019, Red Hat provides open-source software solutions that enable enterprises to run and manage AI-driven workloads.

"Our differentiated outlook is based on IBM's successful shift toward a software-centric model. We foresee revenue and profitability growth exceeding consensus expectations," wrote Singh. "Many investors have overlooked IBM's transformation, as the stock is still analyzed primarily by hardware and IT services specialists."

Strong Q4 Earnings

IBM exceeded expectations in Q4 2024 and forecasts accelerated growth in 2025. During its January 29 earnings call, the company reported that its software segment now accounts for approximately 45% of its business, with a significant portion of this growth led by Red Hat.

Companies worldwide are ramping up investments in AI software, aiming to enhance productivity and reduce costs over the long term. AI-focused stocks such as ServiceNow, Salesforce, and Palantir Technologies have surged over the past 12 months, reflecting investor confidence in the sector.

Dan Ives, an analyst at Wedbush, stated, "The AI software era has arrived." He identified Palantir and Salesforce as the top AI software investments for 2025, while also noting the growing presence of other key players, including Oracle, IBM, Innodata, Snowflake, MongoDB, Elastic, and Pegasystems.

IBM reported strong Q4 2024 results, with adjusted earnings per share (EPS) of $3.92, surpassing analysts' expectations of $3.78. Total revenue grew by 1% to $17.6 billion, aligning with market forecasts.

IBM's software division, particularly Red Hat, performed impressively, posting a 10% revenue increase to $7.92 billion. Red Hat itself grew 16%, underscoring the success of IBM's strategic focus on software and AI services.

Additionally, IBM made significant progress in artificial intelligence, securing over $5 billion in AI-related project orders since mid-2024—up from $3 billion reported in the previous quarter. However, the company's consulting division showed weakness, with a 2% revenue decline to $5.18 billion.

For 2025, IBM projects 5% annual revenue growth and $13.5 billion in free cash flow—both surpassing market expectations. However, the company cautions that currency fluctuations could impact growth by approximately 2%.

The Bottom Line

Once known primarily for its hardware and IT services, IBM has successfully repositioned itself as a major player in the software and AI space. With analysts increasingly recognizing this transformation, IBM's stock may offer significant upside potential as investors catch up to the company's new trajectory.

IBM Stock Analysis

Total Score

 

 

score

3.68

 

Strong Sell

Hold

Strong Buy

 

 

Risk Level

 

LOW

HIGH

 

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