Jefferies analysts have provided a mixed outlook for IBM, initiating coverage with a Hold rating and a $180 per share price target. While the analysts are encouraged by the software momentum within the company, they do not see any breakout play in the near term.
One of the key factors that Jefferies highlighted is IBM’s transformation into a software-led story. The analysts acknowledged the company’s strategic moves, such as the acquisition of Red Hat, the spinoff of Kyndryl, and investments in artificial intelligence (AI) and software. These transformative steps have repositioned IBM in the software market, positioning it as a key player.
However, Jefferies believes that IBM’s true potential lies in its consulting arm, rather than its software offerings. With the Watson platform, the company has a significant opportunity to tap into the growing demand for AI workloads. The majority of customers are still in the early stages of their adoption of AI technologies and will require guidance on how to effectively leverage these technologies. This presents IBM with a lucrative consulting opportunity.
On the downside, Jefferies notes that IBM’s revenue growth is lagging behind its software peers, while operating at lower margins. The analysts suggest that without a meaningful acceleration in software, the upside for IBM may be limited.
Overall, Jefferies’ initiation on IBM reflects the company’s mixed prospects. While the software momentum and the strategic moves are encouraging, the analysts caution that a significant breakthrough may be needed for the stock to experience substantial upside. Investors should keep an eye on IBM’s performance in the software market and its ability to capitalize on its consulting opportunities.