Investors looking to add AI exposure to their portfolio received another trade idea when Citi initiated coverage on International Business Machines (IBM). The research firm cited attractive valuation, acquisition synergies, and artificial intelligence tailwinds as the major reasons for its “Buy” rating and $285 price target.
Citi pointed out that IBM has minimal capital intensity exposure to AI demand while being in a position to build the next leg of enterprise AI systems. This unique position is mainly a result of the company’s existing presence in some of the most complex enterprise IT systems in the world, giving it a strong defensive position in a growing industry.
The company’s acquisition strategy is also going well. Recent acquisitions of HashiCorp in 2025 and Confluent earlier this year allow IBM to build a data nervous system that will power agentic AI through real-time data streaming. This is in addition to the firm’s long-term potential in quantum computing.
Founded in 1911, IBM operates as an integrated solutions and services provider. The company operates through its Financing, Consulting, Software, and Infrastructure segments, offering hybrid cloud and AI platforms, strategy and technology services, on-premises and cloud-based servers and storage solutions, client and commercial financing, and more.
IBM stock has underperformed the broader market over the last year. While the S&P 500 Index ($SPX) has delivered returns of around 28% over the past 52 weeks, IBM stock has gained less than 1% over the same period. The S&P 500 outperforming IBM across multiple time frames highlights weaker momentum in the stock.
The problem with IBM has mostly been its lackluster growth. Estimated earnings growth of 7% in 2026 hardly inspires investors. The 2027 consensus growth rate of 8% doesn’t impress, either. However, this is exactly what makes IBM a great defensive AI bet according to Citi. IBM stock’s forward price-to-earnings (P/E) ratio of 18.6 times is now similar to the broader market and below its own five-year average. When coupled with the scope of healthy upward revisions in earnings and free cash flow on the back of AI opportunities, the valuation is enticing.
IBM reported fourth-quarter earnings on Jan. 28. The company posted revenue growth of 9% in Q4 to $19.7 billion. Annual recurring revenue came in at $23.6 billion, increasing by more than $2 billion versus the end of 2024. Software was the main growth driver during the quarter with revenue rising 11%. This was supported by strong performance in automation, which rose 14%, and data, which grew 19%. The consulting segment also recorded a modest 1% increase, while infrastructure rose 17% year-over-year (YOY). At the end of 2025, IBM had $14.5 billion in cash.
