IBM Valuation in Focus as Quantum Advantage Race Heats Up in 2025

Wondering what to make of International Business Machines right now? You are not alone. Whether you already hold some shares or are just circling the IBM story, the stock’s recent run is enough to catch anyone’s attention. So far this year, IBM is up an impressive 27.9%, with the past month alone delivering a 5.6% gain. Stretch that out to three and five years and we are looking at a staggering 138.0% and 225.6% return, respectively. Clearly, something has been working in Big Blue’s favor.

What is behind this momentum? Recent headlines offer some clues. IBM has carved out a leading role in the quantum computing race, drawing comparisons and competition from Silicon Valley powerhouses like Google and Microsoft. There is also growing focus on artificial intelligence, with industry heavyweights like Citi turning to IBM’s top talent to drive their own AI ambitions. It is a far cry from the old-school IT image, and Wall Street is noticing as risk perceptions seem to be shifting, with more investors willing to bet on IBM’s place in tomorrow’s tech landscape.

But with performance like this, is the stock still a bargain or has it run ahead of itself? IBM currently earns a valuation score of just 1 out of 6 possible checks for being undervalued as we apply traditional methods. That might sound underwhelming, but it is only part of the story. Up next, we will break down exactly what these valuation checks are, how IBM stacks up, and why there may be a smarter way to think about value before you make your next move.

International Business Machines scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future free cash flows and discounting them back to today’s dollars. This approach helps investors gauge what a business is truly worth based on its ability to generate cash in the years ahead.

For International Business Machines, the starting point is a current free cash flow of $11.5 billion. Analysts provide projections for the next several years, with free cash flow expected to gradually rise to $18.7 billion by 2029. After that, further forecasts, extended by Simply Wall St, indicate a continued, though tempered, growth rate through 2035.

When these cash flows are discounted using a 2 Stage Free Cash Flow to Equity model, the fair value per share lands at $290.40. According to this model, IBM’s share price is currently around 3.1% below its intrinsic value, signaling that the stock is trading almost exactly where it should be based on these medium and long-term cash flow expectations.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for International Business Machines.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out International Business Machines’s valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

The price-to-earnings (PE) ratio is a go-to metric for valuing profitable companies because it directly ties a company’s share price to its underlying earnings power. For investors, it is a straightforward way to determine whether the market expects strong growth or is pricing in greater risk for the future.

Growth prospects and perceived risks drive what is considered a “normal” or “fair” PE ratio. Fast-growing, resilient businesses often command higher PE multiples, while slower growth or greater uncertainty tends to push valuations lower. IBM currently trades at a PE ratio of 44.7x, which is noticeably higher than both the industry average of 31.7x as well as the average of its closest peers, which sits around 20.4x. This premium implies that investors might be expecting higher growth or greater stability from IBM compared to its competitors.

Simply Wall St’s proprietary “Fair Ratio” offers a more tailored benchmark, taking into account not just how IBM compares to its peers but also factors like earnings growth, profit margins, industry trends, company size, and relevant risks. For IBM, the Fair Ratio is estimated at 43.3x. This is designed to reflect what the company’s multiple really should be, given its unique set of circumstances. This makes it a more nuanced benchmark than the industry or peer average alone.

IBM’s current PE multiple is almost perfectly aligned with its Fair Ratio. This suggests that the stock price accurately reflects its underlying fundamentals, taking into account not only sector norms but also IBM’s distinctive stability, size, and future earnings outlook.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned there might be a smarter way to think about value, and this is where Narratives come in. Narratives are a simple and powerful tool that let you shape your investment view by weaving together the story you believe about a company, including your expectations for its future revenue, profit margins, and risk, into a personalized financial forecast and fair value estimate.

Instead of relying solely on fixed valuation models, Narratives connect a company’s evolving story directly to its numbers. This approach makes it easy to see how different assumptions change what the business is really worth. On Simply Wall St’s Community page, millions of investors use Narratives to compare their outlook with others, test ideas, and update their convictions whenever fresh news or results are released.

With Narratives, you can quickly gauge whether International Business Machines is a buy, sell, or hold by comparing your calculated Fair Value to the current market price. This helps make your decisions more grounded in your own logic, rather than just someone else’s opinion. For example, looking at International Business Machines, some investors see the potential for significant upside, assigning a Fair Value of $350.00 if future profits and growth outpace expectations, while others think cautious scenarios justify a Fair Value as low as $198.00 if risks dominate. No matter which Narrative matches your views, you are always in control of your investment story.

For International Business Machines, we’ll make it really easy for you with previews of two leading International Business Machines Narratives:

🐂 International Business Machines Bull Case

Fair Value: $281.32

Current Price is 0.02% below this Fair Value

Forecast Revenue Growth: 5.1%

• IBM’s focus on hybrid cloud, AI, and strategic acquisitions is expected to drive revenue growth, margin expansion, and client trust in modernizing IT infrastructure.

• Advancements in technology like the z17 mainframe and generative AI integration give IBM differentiation and pricing power, supporting infrastructure and software revenue growth.

• Disciplined cost management and strategic diversification aim to protect margins and enhance cash flow resilience even amid macroeconomic uncertainties.

🐻 International Business Machines Bear Case

Fair Value: $198.00

Current Price is 42.1% above this Fair Value

Forecast Revenue Growth: 4.6%

• Intensifying competition from leading cloud providers and a shift to cloud-native solutions threaten IBM’s core business and may restrict revenue and margin growth.

• Operational challenges, compliance costs, and high debt are seen as limiting IBM’s flexibility to invest and could jeopardize its long-term financial strength.

• The transformation from legacy to new businesses may not fully offset declines in mainframe and traditional software revenues, raising the risk of stagnant or shrinking overall results.

Do you think there’s more to the story for International Business Machines? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include IBM.

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