IBM shares surged nearly 5% in premarket trading Tuesday after JPMorgan upgraded the stock to Overweight from Neutral, citing an underappreciated software business and AI adoption tailwinds. Analyst Brian Essex raised his price target to $291 from $270, implying roughly 15% upside from Monday's close.
IBM shares jumped nearly 5% in premarket Tuesday after JPMorgan upgraded the stock to Overweight, citing accelerating software growth and AI adoption.
"We are upgrading to Overweight with greater confidence in a second-half 2026 software acceleration following a deeper look at IBM's software business," analyst Brian Essex said in a note to clients Tuesday.
Essex raised his price target to $291 from $270, implying about 15% upside from Monday's close. Software now accounts for roughly 45% of IBM's revenue and about two-thirds of consolidated profit, the analyst noted, adding that the shift toward software supports higher margins and better cash conversion. He pointed to tailwinds from Red Hat and OpenShift migration, as well as automation acceleration following the HashiCorp acquisition.
The upgrade aligns with broader Street sentiment — 15 of 25 analysts covering IBM rate it a buy or strong buy, according to LSEG data. Shares remain down roughly 15% year to date, suggesting the market has yet to fully price in the software transformation.
Morgan Stanley also raised its price target on IBM to $267 from $225 this week, keeping an Equal Weight rating, while noting that Wall Street estimates for 2026 and 2027 "look too low." The firm cited resilient enterprise server demand and growing AI-related infrastructure requirements.
JPMorgan said that if IBM succeeds in becoming a significant beneficiary of growing AI demand, there could be room for multiple expansion. The company also stands to benefit from new US quantum computing initiatives, with Chief Executive Officer Arvind Krishna present at the White House when President Donald Trump signed executive orders directing accelerated domestic quantum development.
The upgrade signals that Wall Street is beginning to recognize IBM's software-driven margin expansion and recurring revenue quality. Investors will watch the company's second-half 2026 results for evidence of the acceleration Essex expects.
This article is for informational purposes only and does not constitute investment advice.
