International Business Machines Corporation (IBM): A Bull Case Theory 

We came across a bullish thesis on International Business Machines Corporation on Compounding Your Wealth’s Substack by Sergey. In this article, we will summarize the bulls’ thesis on IBM. International Business Machines Corporation’s share was trading at $294.31 as of February 3rd. IBM’s trailing and forward P/E were 26.42 and 23.58 respectively according to Yahoo Finance.

International Business Machines Corporation, together with its subsidiaries, provides integrated solutions and services in the United States and internationally. IBM closed Q4 with $19.7 billion in revenue, up 12.2% year-over-year, driven by strong execution and high-quality growth. Gross margin expanded to 61%, operating margin rose to 23%, and EBITDA margin reached 30%, reflecting disciplined cost management and a favorable mix shift.

Software remains the core growth engine, contributing nearly 46% of revenue with over 80% gross margins and 14% YoY growth. Infrastructure also outperformed expectations, delivering 20.6% growth powered by the z17 cycle and a 620-bps expansion in EBT margins, highlighting its role as a margin amplifier.

GenAI continues to scale across software and consulting, signaling deeper integration into IBM’s platform. SG&A and R&D expenses as a percentage of revenue declined slightly, reinforcing the company’s operational discipline. While Q4 free cash flow margin fell 520 bps YoY due to seasonality and investment timing, absolute cash generation remained robust, and management expects free cash flow to resume growth in 2026. Guidance remains constructive, with anticipated 5%+ constant-currency revenue growth, operating margin expansion of roughly 100 bps, and continued cash flow improvement.

IBM is increasingly positioned as a software-first platform company, with infrastructure serving as a cyclical but powerful profit lever. The company’s consistent execution, strong margins, and growth in high-value segments support a bullish outlook. Despite a forward P/E of 26x, the combination of margin expansion, operating leverage, and integrated GenAI adoption makes IBM an attractive investment, with potential for sustainable growth and positive rerating as the market recognizes its evolving software-led strategy.

Previously, we covered a bullish thesis on International Business Machines Corporation (IBM) by Magnus Ofstad in December 2024, which highlighted IBM’s pivot to agentic AI through its watsonx.ai platform and the potential for transformative growth. IBM’s stock price has appreciated by 28.51% since our coverage. Sergey shares a similar perspective but emphasizes IBM’s strong Q4 execution, margin expansion, and software-led platform growth.

International Business Machines Corporation is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 66 hedge fund portfolios held IBM at the end of the third quarter which was 63 in the previous quarter. While we acknowledge the risk and potential of IBM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than IBM and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.