International Business Machines Corporation (NYSE:IBM) generated $7.77 billion of first-half 2026 operating cash flow, up from $6.07 billion a year earlier. Almost all the improvement came from financing-receivable movements. That matters as customers redirect technology budgets toward servers and memory: collecting existing balances strengthens liquidity, while sustainable cash growth still depends on profitable software, consulting and infrastructure sales. IBM is also positioning itself in next-generation computing, making it worth exploring these 10 Best Quantum Computing Stocks to Buy and Hold Forever.
International Business Machines Corporation carries a quoted forward P/E of 17x, against 21x trailing earnings. Reported and adjusted profits tell different stories. Acquisition amortization and certain retirement costs reduce reported earnings, while a substantial 2025 tax benefit lifted them. Those accounting effects make the cash performance behind expected earnings especially important. The valuation looks reasonable if operating improvement delivers management’s annual cash-growth target. Read about IBM’s valuation here.
Analysts expect calendar-2026 adjusted EPS growth of about 6% for International Business Machines Corporation, versus 16% for SAP SE (NYSE:SAP), using each company’s currency and adjustments. The software peer is the closer operating comparison for the growth thesis; Accenture plc (NYSE:ACN) benchmarks consulting. Its reported earnings follow U.S. GAAP, while SAP SE reports under IFRS.
Receivables Explain the Cash Increase
For International Business Machines Corporation, financing-receivable movements contributed $2.26 billion to first-half operating cash flow, compared with $606 million a year earlier. The $1.66 billion difference explains approximately 98% of the operating-cash-flow increase, by calculation. Releasing capital from customer financing produces real cash, but it can occur without stronger recurring profits.
International Business Machines Corporation defines non-GAAP free cash flow as operating cash flow excluding financing-receivable movements, less net capital expenditure. That measure was $4.76 billion, compared with $4.81 billion. The adjustment reveals a business whose first-half cash generation after investment was essentially unchanged.
Financing can support customer purchases and strengthen relationships. However, payment flexibility earns its return through collections and credit quality. Replacing collected balances with new financing can absorb cash again, making a repeatable earnings contribution more valuable than a temporary release of capital.
International Business Machines Corporation produced $14.73 billion of this free cash flow in 2025, up approximately 16%. Management still targets roughly $1 billion of additional cash in 2026. Subtracting the first-half result implies about $10.97 billion required in the second half, approximately 11% above the comparable period. The target is achievable against an established cash-generating base, but it requires a clear acceleration from the first half.
Software Must Fund the Recovery
International Business Machines Corporation has a credible source of durable earnings. Approximately 80% of software revenue is recurring, and replacing systems embedded in important customer workflows can be costly. Those relationships support renewals and allow development costs to be spread across repeat sales. Yet durable software relationships must still translate into shareholder cash.
The spending environment complicates that conversion. Management said customers brought forward purchases of supply-constrained servers, storage and memory ahead of expected price increases, disrupting software and mainframe purchases. Year-over-year software growth slowed to 5% in the second quarter from 11% in the first. Gross margin remained high at 82.6%, but declined as investment and product mix absorbed part of the benefit.
Productivity offers a partial answer. Software segment profit increased approximately 9% year over year despite slower sales growth. That shows operating improvement is possible, although acquisitions contributed to revenue and ongoing development spending remains necessary to defend the customer base.
International Business Machines Corporation also spent $10.5 billion on acquisitions in the first half. Those purchases are outside its free-cash-flow measure. Cash, restricted cash and marketable securities fell to $8.2 billion, while debt reached $62 billion, including $13 billion associated with financing. Acquired growth must therefore earn returns after integration, reinvestment and interest. How cash is allocated between acquisitions, shareholders and debt determines how much operating progress ultimately benefits owners.
Conclusion
International Business Machines Corporation looks reasonably valued at 17x forward earnings, provided it delivers the cash target through stronger operations. Customer financing explains the reported cash recovery so far. Recurring software revenue and productivity support the second-half case, but sustained financing-adjusted cash growth must follow. Continued stagnation alongside heavy acquisition spending would make the valuation less attractive, even if reported operating cash flow kept rising.
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This article is originally published at Insider Monkey.
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