IBM saw its shares rise on Monday following a positive call from Goldman Sachs analyst James Schneider, who initiated coverage of the software, services, and mainframe company with a Buy rating and a price target of $200, representing a 16% increase from the previous closing price. By mid-morning, IBM’s stock was up 3.3% to $178.18. The stock has risen 8% this year and 36% over the past year. Schneider also provided a Buy rating and $200 price target on [global company name], while issuing Sell ratings for Thoughtworks and TaskUS, and Neutral ratings for accent, Competent, EPAM Systems, and soft choice.
Schneider highlighted that the companies he covers have seen a decline of 16% this year due to IT spending constraints driven by macroeconomic factors and a shift in spending priorities towards AI among many companies. He indicated that generative AI is expected to benefit the industry in the long term, although certain parts of the IT services landscape, particularly business process services, face secular risks.
Regarding IBM specifically, Schneider believes the company is successfully transitioning towards long-term growth by focusing on infrastructure software, open source, and artificial intelligence. He praised IBM’s consulting services as being complementary and gaining market share rapidly. Schneider is optimistic about IBM’s potential for sustained revenue growth of 5-7% in the long term, along with free cash flow growth of around 10%, driven by product growth, AI services, consulting market share gains, and core software portfolio growth. He anticipates a rise in IBM’s future P/E ratio to 18 times or more, up from the 9-13 range before 2020 and around 16.6 times recently.
In conclusion, Schneider believes that IBM has the potential for continued stock appreciation as its software business mix improves and the company demonstrates consistent financial performance. He is positive about IBM’s ability to maintain revenue and cash flow growth driven by key growth areas in the business. Overall, Schneider sees IBM as having a bright outlook for the future.
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https://www.barrons.com/amp/articles/ibm-stock-ai-buy-rating-goldman-af9de14d