Truist Initiates IBM at Hold With $240 Target, Flags AI Demand Timing

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Truist Securities initiated coverage of IBM at Hold with a $240 price target, saying it is constructive on the company's long-term enterprise computing position but cautious on near-term execution. Analysts led by Arvind Ramnani said IBM is positioned across mainframes, software that works across AI models, Red Hat, and a consulting arm that helps clients deploy AI, but the key question is when enterprise spending on AI infrastructure will translate into demand for IBM. Software now makes up 45% of revenue and 61% of segment pre-tax income, with about 80% of it recurring and annual recurring revenue of $24.6 billion growing 8%. The analysts called IBM's second-quarter miss an execution and timing issue rather than a structural problem, noting clients shifted budgets toward servers, storage and memory to secure supply-constrained AI hardware and dozens of large mainframe-linked software contracts were deferred rather than canceled. IBM cut its full-year constant-currency revenue growth guidance to 4%-5% from 5%-plus and sized the software shortfall at $400 million to $500 million, after which the shares fell more than 20%, mostly through multiple compression, with forward P/E dropping to 16 times from 22 times. Truist's price target applies 18 times fiscal 2027 operating EPS of $13.18, and the analysts said they could become more constructive if deferred contracts close without meaningful discounts, Transaction Processing growth improves sustainably, and organic software growth strengthens rather than growth driven by acquisitions.

Impact on assets 2

Quantum Computing▲
International Business Machines
IBM
± MixedCapitalrelevance

Truist initiates IBM at Hold with $240 target, citing cautious near-term AI spending timing and deferred mainframe software contracts after guidance cut.

Financials▲

Off-coverage companies 2

Red Hat, Inc.i
Private± MixedDemandrelevance

Red Hat is cited as part of IBM's portfolio, with the key question being when enterprise AI spending translates into demand.

Truist Securities, Inc.i
Private± Mixedrelevance