Stifel on Thursday increased its price target for IBM to $340 from $325 and maintained a Buy recommendation, citing the company’s strong free cash flow performance and resilient software results. The firm’s revised target remains below the analyst high of $375, even as IBM trades near its 52-week high of $324.90.
Results from IBM’s fourth quarter of 2025 showed 7% organic revenue growth and 15% growth in earnings per share, outcomes that largely matched or slightly exceeded consensus expectations. Over the last twelve months, data confirm revenue growth of 7.62% and diluted EPS of $11.14.
The standout metric for Stifel was free cash flow. IBM’s Q4 2025 free cash flow exceeded estimates by $0.7 billion, a roughly 10% beat for the quarter, and the company’s free cash flow guidance for 2026 was also about $0.7 billion higher than consensus, representing a 4-5% margin above expectations. On a trailing twelve-month basis, IBM generated $12.47 billion of levered free cash flow, translating to an approximate 4% free cash flow yield.
Management’s 2026 revenue and margin guidance was characterized as consistent with market expectations. Software revenue is expected to accelerate through the year, and guidance incorporates the anticipated inclusion of Confluent following its expected mid-2026 acquisition close. For fiscal 2026, IBM is forecasting revenue growth of 7% alongside maintained gross profit margins of 58.19%.
The market reaction to the results was immediate: IBM shares were trading about 8% higher in pre-market activity, reflecting investor focus on the free cash flow outperformance and solid software results. Stifel noted that, on a relative basis, the stock is trading at roughly a 35% premium to the equal-weight S&P 500, consistent with the company’s performance over the last twelve months.
Additional company disclosures in the most recent quarter underscored the breadth of the beat. Constant-currency revenue rose 9% year over year for the quarter, with total revenue of $19.69 billion versus the Street estimate of $19.21 billion. Adjusted free cash flow for the quarter reached $7.6 billion, and adjusted free cash flow for the full year totaled $14.7 billion, both figures exceeding guidance and consensus. IBM’s generative AI backlog expanded to $12.5 billion from $9.5 billion, indicating strengthening demand for its GenAI offerings.
Several other firms moved their targets higher following IBM’s report. RBC Capital raised its price target to $361, citing year-end strength and stability driven by free cash flow outperformance. Wedbush and BofA Securities each moved their targets to $340, pointing to the company’s AI momentum and the solid quarterly print. JPMorgan lifted its target to $317, noting healthy software growth and profitability, while Morgan Stanley adjusted its target to $304, highlighting the company’s strong free cash flow showing.
Implications for investors and markets
The combination of outperforming free cash flow, an expanding GenAI backlog, and software momentum led several sell-side firms to increase their valuations for IBM. The market reaction and multiple target adjustments reflect investor and analyst willingness to ascribe a premium to IBM relative to the equal-weight S&P 500, supported primarily by cash generation and software trends reflected in the company’s guidance.