UBS upgrades IBM after 22% slide as valuation resets

Investing.com -- UBS upgraded IBM to Neutral from Sell, saying the stock’s recent decline has brought risk and reward into better balance despite a modest growth outlook.

“We upgrade IBM shares to Neutral from Sell as the risk/reward going forward is more balanced in our view,” analysts at UBS said.

IBM shares have fallen about 22% in 2026 and underperformed the S&P 500 by nearly 27% over the past 12 months.

The stock now trades at roughly 18.5 times its 2026 earnings estimate of $12.43 per share and 17.5 times its 2027 estimate of $13.13.

UBS expects IBM to deliver 3% to 4% organic revenue growth over the next several years. It said prior concerns around uneven execution, reliance on acquisitions and a premium valuation have been reflected in the shares, which now trade at a mid teens discount to the broader market.

The brokerage pointed to slowing growth at Red Hat, uncertainty in the Consulting unit as AI reshapes demand, and fears that AI tools could modernize legacy COBOL systems and pressure IBM’s infrastructure business. However, UBS said the competitive risk to IBM’s Z mainframe platform appears largely priced in, noting customer stickiness, data sovereignty requirements and the company’s vertically integrated stack.

IBM guided to 2026 free cash flow of $15.7 billion, or about $16.25 per share, implying a roughly 7% free cash flow yield. UBS said that is in line with other large software companies growing revenue in the mid single digits.

UBS kept its price target at $236, based on about 18 times its 2027 earnings estimate.

In a bull case, UBS sees the stock reaching $312 if software growth accelerates and margins expand. In a bear case, it sees shares falling to $134 if AI coding tools disrupt IBM’s software and infrastructure revenue.

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