IBM Shares Gain Momentum Ahead of Earnings Report

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Market sentiment toward IBM continues to improve. As the technology giant prepares to release its quarterly figures, it has received another vote of confidence from Wall Street, with Bank of America issuing a positive update. However, alongside raising its price target, the firm's analysts have cautioned about near-term pressure on profit margins and slightly tempered expectations for the coming year.

The latest show of support came from BofA Securities, which on Tuesday morning reaffirmed its "Buy" rating for IBM shares while lifting its price objective from $315 to $335. This move aligns with the optimistic stance taken by Jefferies earlier in January. On January 6, Jefferies upgraded the stock and set a price target of $360, emphasizing the company's potential in cloud computing and its Red Hat division. Bank of America's confidence, in contrast, is primarily anchored to IBM's robust cash flow generation.

The stock has responded favorably to this analyst activity. It is currently trading near its 52-week high of $312.18 and has advanced more than 7% since the start of the year.

Long-Term Drivers: Software and Strategic Acquisitions

Despite some near-term cautions, the long-term outlook from analysts remains positive. The high-margin software business is seen as a key growth engine. Furthermore, the impending integration of the $11 billion acquisition of Confluent is viewed as a strategic positive that supports the buy recommendation. Looking ahead to fiscal 2026, Bank of America projects that IBM will generate approximately $15 billion in free cash flow, a figure that underscores the investment case for the equity.

Margin Pressures Loom as a Near-Term Challenge

The analysis is not without its caveats. Experts anticipate that the upcoming quarterly report will be impacted by an estimated $400 million in workforce restructuring charges. This expense is likely to cause IBM to fall just short of its own margin expansion target for fiscal 2025. Following what is expected to be an exceptionally strong 2025, Bank of America forecasts a somewhat more moderate performance for 2026.

All eyes are now on January 28. When IBM discloses its results for the fourth quarter of 2025, the critical focus for investors will be whether management's guidance for 2026 confirms the anticipated growth within the software segment.