UBS has revised its stance on IBM, raising the stock to Neutral from Sell as the brokerage concluded that a recent pullback has moved downside risk closer into balance with potential gains. "We upgrade IBM shares to Neutral from Sell as the risk/reward going forward is more balanced in our view," UBS analysts said.
Shares of IBM have fallen about 22% so far in 2026 and have lagged the S&P 500 by nearly 27% over the last 12 months. The stock currently trades at around 18.5 times UBS’s 2026 earnings estimate of $12.43 per share, and roughly 17.5 times the 2027 estimate of $13.13.
UBS projects IBM will produce 3% to 4% organic revenue growth over the coming years. The firm noted that prior market worries - including uneven execution, a reliance on acquisitions for growth, and a previously high valuation - appear to have been at least partly priced into the shares. UBS observed that IBM now trades at a mid-teens discount relative to the broader market.
The note detailed several pressures facing the company. UBS pointed to slowing growth at Red Hat and cited uncertainty in the Consulting business as artificial intelligence reshapes customer demand. The brokerage also highlighted concerns that AI-enabled tools could modernize legacy COBOL systems, posing a potential headwind to IBM’s infrastructure franchise.
Despite those concerns, UBS said competitive threats to IBM’s Z mainframe platform seem largely reflected in the share price. The analysts pointed to factors supporting pricing - customer stickiness, data sovereignty requirements, and IBM’s vertically integrated stack - as mitigating elements to direct competitive erosion.
On capital returns and cash generation, IBM guided to 2026 free cash flow of $15.7 billion, or about $16.25 per share, which implies a free cash flow yield near 7%. UBS noted that this cash generation is consistent with other large software companies that are growing revenue in the mid-single-digit range.
UBS maintained its price target at $236, which the brokerage said is based on roughly 18 times its 2027 earnings estimate. The firm outlined a bullish scenario in which the stock could reach $312 if software growth accelerates and margins expand. Conversely, UBS set a bearish case at $134 should AI coding tools meaningfully disrupt IBM’s software and infrastructure revenue.
Context for investors
The upgrade to Neutral reflects a valuation-driven recalibration rather than a decisive change in IBM’s near-term growth trajectory. Key variables for future performance include organic revenue trends across software and consulting, the pace of margin expansion, and the extent to which AI adoption alters demand for legacy infrastructure.