IBM shares rose about 9% on Monday following Barclays' initiation of coverage with an Overweight rating, a move that reflected the broker's view that IBM is steadily shifting toward a software-centric business model with improving margins and stable growth prospects.
Barclays set a $350 price target on the stock, which it calculated to represent roughly 17.5% upside from IBM's May 29 closing price. The firm cited several structural drivers for the bullish outlook, including the expanding contribution of software to IBM's revenue base, the company's hybrid cloud strategy built around Red Hat Enterprise Linux and OpenShift, and exposure to enterprise spending tied to artificial intelligence.
According to Barclays, software now accounts for nearly half of IBM's revenue and produces the majority of the company's profits. The brokerage expects the software mix to grow further over time and projects mid-single-digit organic revenue growth paired with ongoing margin expansion. Barclays attributes these forecasts in part to IBM's portfolio of infrastructure software that serves large, regulated customers.
Central to Barclays' thesis is IBM's hybrid cloud approach. The firm highlighted Red Hat Enterprise Linux and OpenShift as the cornerstones of that strategy, arguing enterprises will continue to operate in hybrid environments that combine public cloud, private cloud, and on-premises infrastructure. That persistence of hybrid deployments, Barclays says, should sustain demand for IBM's software stack, automation tools, and data management capabilities.
Barclays also flagged artificial intelligence as a near- to medium-term tailwind for several IBM businesses. The brokerage expects AI adoption to increase demand for IBM software platforms, specifically naming watsonx and data integration tools, as well as infrastructure products intended to run AI workloads close to enterprise data. These elements were presented as reinforcing IBM's hybrid cloud, data, and distributed infrastructure franchises.
Looking further ahead, Barclays views quantum computing as a meaningful long-term opportunity for IBM. The firm pointed to IBM's leadership position in the space, including a fleet of cloud-accessible quantum processors and more than $1 billion in quantum-related contracts. Barclays noted that while substantial revenue from quantum computing remains years away, IBM's early investments provide optionality for investors.
On valuation, Barclays uses an enterprise value-to-unlevered free cash flow framework and applies a 21x multiple for calendar year 2027. The brokerage argued that, even after recent gains in IBM's share price, the stock remains attractively valued relative to other large technology peers under this methodology.
Contextual note - The commentary above summarizes Barclays' published initiation and the market reaction on the day coverage began. Where Barclays provided forward-looking expectations, those are presented as the brokerage's forecasts and assumptions.