International Business Machines Corporation
Diversified enterprise IT: hybrid-cloud software (Red Hat, watsonx, Confluent) + global consulting + mainframe/infrastructure, with quantum-as-a-service (IBM Quantum Network, pay-per-use cloud access) as an emerging R&D-funded moonshot bundled inside Software/Infrastructure
- 2026-08-04This market capitalisation previously read ~$255B (as of Jun 2026). Restated to ~$213.2B on this refresh, roughly 16% lower.
- 2026-08-04This share price previously read ~$271.63 (as of Jun 24 2026). Restated to $226.31 on this refresh, roughly 17% lower.
Sources — 14 figures with citations
- Q2 FY2026 revenuefiled2026-06-30$17.16B (+1% YoY vs $16.98B)sec.gov — 8-K Ex-99.1 income statement summary, quarter ended Jun 30 2026; $17.2B rounded in the narrative, $17,157M in the statements. Prior-year $16.98B per SEC XBRL Revenues (Q2 2025).
- Q2 FY2026 gross marginfiled2026-06-3057.7% GAAP / 59.4% operating (non-GAAP)sec.gov — GAAP gross profit $9.9B; YoY -100bps GAAP, -70bps operating.
- Q2 FY2026 pre-tax income marginfiled2026-06-3014.4% GAAP / 19.2% operating (non-GAAP)sec.gov — GAAP pre-tax income $2.5B; -90bps GAAP YoY, +30bps operating YoY. IBM reports pre-tax income margin rather than an operating-income margin.
- Q2 FY2026 EPS and net incomefiled2026-06-30GAAP diluted EPS $2.27 (-2%); operating EPS $2.93 (+5%); GAAP net income $2.2Bsec.gov — Continuing operations.
- Cash and total debtfiled2026-06-30$8.2B cash + restricted cash + marketable securities; $62.0B total debt incl. $13.0B IBM Financing debtsec.gov — Cash down $6.3B from year-end 2025; debt up $0.7B YTD; $10.5B invested in acquisitions YTD. Net debt derived: 62.0 - 8.2 = $53.8B.
- H1 FY2026 operating cash flow and free cash flowfiled2026-06-30$7.8B opcash (+$1.7B YoY); $4.8B FCF (flat YoY)sec.gov — Q2 alone: $2.6B opcash (+$0.9B), $2.5B FCF (-$0.3B). FCF margin H1 = 4.8/33.08 = 14.5%, understated vs full year because IBM's FCF is 4Q-weighted ($7.6B in Q4 2025 alone).
- FY2026 guidance changefiled2026-07-22cc revenue growth cut to 4-5% from 'more than 5%'; FX from a half-to-one-point tailwind to neutral; FCF unchanged at +~$1B YoYsec.gov — Prior guide verified in the Q1 FY2026 8-K Ex-99.1 (Apr 22 2026): 'continues to expect full-year constant currency revenue growth of more than 5 percent... currency is expected to be about a half-point to one-point tailwind'. New guide in the Q2 8-K Ex-99.1 (Jul 22 2026).
- FY2025 revenue (restated base for growth math)filed2025-12-31$67.53B FY2025; $62.75B FY2024; H1 2025 $31.52B; H1 2026 $33.08Bdata.sec.gov — SEC XBRL us-gaap:Revenues, 10-K/10-Q values. TTM through Q2 FY2026 derived: 67.53 - 31.52 + 33.08 = $69.09B, which reconciles to the $69.10B TTM shown on stockanalysis.com. FY2025 growth derived: 67.53/62.75 - 1 = +7.6%.
- FY2025 capital expenditure (PP&E)filed2025-12-31$1.091B FY2025; $0.461B H1 FY2026data.sec.gov — SEC XBRL us-gaap:PaymentsToAcquirePropertyPlantAndEquipment. Capex intensity derived: 1.091/67.53 = 1.6% FY2025; 0.461/33.08 = 1.4% H1 FY2026.
- FY2025 free cash flow (base for the FCF-margin figure)filed2025-12-31$14.7B, up $2.0B YoY; Q4 2025 alone $7.6Bsec.gov — Q4 2025 8-K Ex-99.1 (Jan 28 2026). FCF margin derived: 14.7/67.53 = 21.8%.
- Share price (close)market2026-08-03$226.31stockanalysis.com — NYSE regular-session close Mon Aug 3 2026 (not an intraday print); independently corroborated by the Yahoo Finance chart endpoint, whose regularMarketTime for this quote is 2026-08-03 20:00 UTC = 16:00 ET, i.e. the closing auction.
- Market capitalisationderived2026-08-03~$213.2Bstockanalysis.com — Derived: 942.13M shares outstanding x $226.31 Aug 3 2026 close = $213.24B; matches the $213.21B shown on the source page.
- Q2 FY2026 consensus (for the beat/miss call)market2026-07-22revenue ~$17.58B expected vs $17.16B reported; adj EPS ~$2.97 expected vs $2.93 reportedcnbc.com — Sell-side consensus as reported at the print; third-party estimate, not a filed figure.
- Cause of the shortfall (management's own account)filed2026-07-14Z / Transaction-Processing shortfall from late-June client capex reprioritisation toward supply-constrained servers, storage and memory; large deals missed close timelinessec.gov — CEO letter filed as 8-K Ex-99.1 on Jul 14 2026, pre-announcing preliminary Q2 results eight days before the scheduled Jul 22 release. Contains the verbatim 'this quarter we faltered' and the Distributed Infrastructure +37% / ~$500M backlog disclosures.
The thesis on this name
State of Enterprise AI SaaS
The defensive ballast for a seat-compression board — services + mainframe + watsonx ($12B+ gen-AI bookings), 2.3% yield, 31-yr dividend record, and almost no per-seat SaaS to be cannibalized.
State of Quantum Computing
The only quantum name underwritable on cash flows today. Quantum is a free, credible call option inside a profitable ~$200B+ IT business with a dated FTQC roadmap (Nighthawk 120-qubit/2026; Starling 200 logical qubits/2029). You buy IBM for hybrid-cloud/AI earnings and the dividend; you get the most mature full-stack quantum program (Qiskit ecosystem, largest installed fleet) for free, without paying a pure-play multiple.
State of Quantum Computing
Own the only quantum name you can underwrite on cash flows; quantum is a free FTQC call option inside a profitable ~$200B+ IT business.
State of Quantum Computing
Medium conviction and the only name here you can underwrite on cash flows TODAY. Quantum is a free call option embedded in a profitable ~$200B+ IT-services/software/infrastructure business funding a credible, dated FTQC roadmap (Nighthawk 120-qubit/2026, Starling 200 logical qubits/2029). You are paid to wait via the dividend and core earnings; the quantum lab is upside you didn't pay a pure-play multiple for. The risk-controlled core of the theme sleeve.
Earnings, margins, COGS & capex
A ~$63B/yr diversified enterprise-IT business with software (~45% of revenue) as the high-margin growth engine, supplemented by a current mainframe super-cycle and a large but lower-margin consulting arm. Strong, growing free cash flow (~$14.7B FY25) funds the dividend, buybacks, M&A, and the entire quantum R&D program. Quantum itself is an embedded moonshot (~$1B cumulative revenue, not segment-disclosed) — material to the narrative and optionality, immaterial to the P&L.
Income statement — where each revenue dollar goes
% of revenueOf every $1 of revenue, ~42¢ is cost of goods and ~43¢ operating expense, leaving ~14¢ of operating profit.
Revenue trend
Margins
+100 bps YoY; 58.2% FY25
+110 bps YoY; 59.5% FY25
+140 bps YoY
up from 8.6% YoY on IBM Z +51%
COGS structure
Cost of revenue ~42-44% of sales (gross margin ~56-58%); services/consulting carry the heaviest cost-of-delivery, software the lightest. Mix-shift toward software is the structural margin tailwind.
Capex
Asset-light: capex ~2-3% of revenue (software/services model). The capital intensity sits in M&A ($11.6B Confluent in Q1 FY26; Red Hat/HashiCorp historically) and self-funded quantum R&D (Starling built at Poughkeepsie), not heavy plant.
Latest earnings
Miss on both lines. Revenue $17.16B vs ~$17.58B consensus; operating EPS $2.93 vs ~$2.97 consensus. IBM pre-announced the shortfall on Jul 14, eight days ahead of the scheduled Jul 22 release -- an unusual step that itself signals the size of the surprise. Cause named by management: a Z mainframe / Transaction-Processing shortfall as clients reprioritised late-June capex toward supply-constrained servers, storage and memory ahead of expected price increases, plus large deals that failed to close on schedule.
FY2026 constant-currency revenue growth CUT to 4-5% (from 'more than 5%' guided at Q1 on Apr 22 2026), and FX now expected neutral to growth (previously a half-point to one-point tailwind) -- so the dollar-revenue guide came down twice over. FY2026 free cash flow guidance UNCHANGED at +~$1B YoY (i.e. ~$15.7B off the $14.7B FY2025 base). Company now expects improved pre-tax income margin expansion for the full year.
- Software revenue
- $7.8B, +5% YoY
- Hybrid Cloud (Red Hat)
- +11% YoY (growth accelerated sequentially)
- Software - Data
- +19% YoY (+18% cc)
- Software - Transaction Processing
- -8% YoY (-9% cc) -- collateral damage from the Z shortfall
- Consulting revenue
- $5.3B, flat YoY (+1% cc)
- Infrastructure revenue
- $3.8B, -7% YoY
- IBM Z
- -42% YoY (z17 program wrapped); program-to-program still ~130% of z16
- Distributed Infrastructure
- +37% YoY -- best in reported history; ~$500M order backlog exiting Q2
- Financing revenue
- $0.186B, +12% YoY (+11% cc)
- H1 FY2026 operating cash flow / FCF
- $7.8B (+$1.7B YoY) / $4.8B (flat YoY)
- Quarterly dividend
- $1.69/share declared (record date Aug 10 2026); consecutive quarterly dividends since 1916
- Quantum commitment
- >$10B over five years across R&D, capex, manufacturing, M&A; Anderon quantum wafer foundry LOI with US Dept of Commerce ($1B CHIPS incentives + $1B IBM cash); first large-scale fault-tolerant machine still targeted 2029
- YTD acquisitions
- $10.5B invested in 2026 to date (HashiCorp, Confluent contributing)
Growth drivers
- Software (Red Hat +13%, Data +19%, watsonx, Confluent) — now ~45% of revenue and accelerating
- Mainframe AI super-cycle (IBM Z +51% Q1 FY26, z17 on-chip inference)
- GenAI book of business (>$12.5B, FY25)
- Quantum-as-a-service + post-quantum cryptography (optionality, late-decade)
- Hybrid-cloud lock-in via OpenShift
Reported financials — SEC EDGAR
Audited GAAP figures pulled from SEC filings · latest filing 2026-02-24. The audited primary-source spine — not financial advice.
Revenue — annual (GAAP)
Margins & balance sheet — FY’25
Bull & bear
The quantum leg of the thesis got materially stronger this quarter while the price fell ~17% -- you are paying less for a bigger, better-funded free call, on top of a ~$15B/yr free-cash-flow engine whose guidance was NOT cut.
- Quantum went from moonshot line-item to a funded programme: >$10B over five years, plus the Anderon pure-play quantum wafer foundry LOI with the US Department of Commerce ($1B CHIPS incentives + $1B IBM cash). The 2029 large-scale fault-tolerant target was reaffirmed in the same release as the revenue miss -- i.e. the roadmap was not the thing that broke.
- FCF guidance survived a revenue guidance cut. IBM still expects FY2026 free cash flow up ~$1B YoY off a $14.7B FY2025 base, and now expects BETTER full-year pre-tax margin expansion -- productivity/mix, not volume, is carrying the cash line.
- Software, the actual profit engine, still grew 5% with Red Hat accelerating to +11% and Data +19%. The weakness was concentrated in Z hardware and its attached Transaction Processing stack, not in the strategic portfolio.
- Asset-light economics are intact: ~1.4-1.6% of revenue in PP&E capex, ~21% TTM FCF margin. IBM converts revenue to cash at a rate the hyperscaler-adjacent AI names cannot, and can fund a $10B quantum programme out of operating cash flow rather than dilution or debt.
- Distributed Infrastructure +37% (best in reported history) with a ~$500M backlog shows IBM is capturing some of the same AI-infrastructure demand that hurt the Z line -- the capex reprioritisation that cost Z revenue landed partly inside IBM.
- The de-rating creates the asymmetry: at $226.31 the market is discounting the cash-flow compounder for a mainframe-cycle problem that management has framed as timing, while the quantum optionality is still carried at roughly zero.
The compounder leg cracked. A cc revenue guide cut from >5% to 4-5%, IBM Z down 42%, GAAP gross margin down 100bps, and a pre-announcement eight days early -- that is an execution miss management itself described as 'we faltered', and the quantum call is still worth nothing on the P&L.
- Guidance came down twice in one move: cc growth >5% to 4-5% AND the FX tailwind (half-point to one-point) removed. The reported-dollar revenue outlook is meaningfully lower than in April.
- IBM Z -42% YoY with Transaction Processing -8% shows how tightly the software annuity is coupled to the mainframe hardware cycle. z17 wrapping was known; the magnitude was not, which means the attach model is less predictable than the 'software annuity' framing implies.
- Management's own diagnosis is partly self-inflicted: 'We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected.' A pre-announcement eight days before a scheduled release is what a company does when the miss is too large to hold.
- The cash line is being flattered by the balance sheet: cash + marketable securities fell $6.3B from year-end 2025 while $10.5B went into acquisitions, leaving ~$53.8B net debt. Growth is increasingly bought (HashiCorp, Confluent) rather than organic.
- GAAP quality is deteriorating at the margin: GAAP gross margin -100bps and GAAP pre-tax margin -90bps YoY, versus operating (non-GAAP) pre-tax margin +30bps. The gap between the two is the part investors are asked to look past.
- Quantum remains a cost, not a revenue line. >$10B over five years is real cash out against a 2029 milestone -- if the fault-tolerance date slips, the 'free call' becomes a funded liability with no offsetting P&L contribution.
What it is worth
Multiple-based (P/E + FCF yield) cross-checked with a reverse-DCF sanity test and a sum-of-the-parts/optionality lens. Peer set: enterprise-IT/software-services comps (ACN, ORCL, MSFT) for the core; quantum pure-plays (IONQ, RGTI, QBTS) as the optionality reference.
~$200-230 (consulting decel deepens, mainframe comps roll over, quantum slips past 2029, multiple compresses to ~17-19x)
~$270-300 (low-single-digit FCF growth, multiple holds ~22-24x, dividend + buyback carry)
~$320-360 (re-rate to ~26-28x on verified quantum advantage by end-2026 + sustained software acceleration + FCF guide-up)
At ~$271.63 and ~$255B market cap, IBM trades ~22-24x trailing P/E and a ~5-6% FCF yield (~$14.7B FCF / ~$255B). A reverse-DCF implies the market is pricing low-single-digit FCF growth (~3-5%) plus modest margin expansion — reasonable for the core but leaving little credit for, and little downside from, a successful quantum option. Quantum carries no separable disclosed value (~$1B cumulative revenue); it is embedded free optionality, not a SOTP line. Conviction is MEDIUM, not high: the asymmetry is attractive (you own a FCF compounder with a free quantum call), but the multiple is near a multi-year high with limited margin of safety and the core grows slowly — so this is a balanced 'own the cash flow, get the option free' case, not a deep-value setup. NOT financial advice.
SWOT
Strengths
- Decade-high free cash flow (~$14.7B FY25) funds dividend, buybacks, M&A, and quantum R&D from operating cash — no dilution to fund the moonshot
- Software now ~45% of revenue and accelerating (+11% Q1 FY26), anchored by Red Hat/OpenShift hybrid-cloud lock-in
- Largest accessible quantum fleet + Qiskit as the de-facto open-source SDK (developer-ecosystem moat)
- Mainframe install-base near-monopoly (IBM Z +51% Q1 FY26) — sticky, mission-critical, high-margin
- Most-detailed, publicly-sequenced fault-tolerant roadmap (Nighthawk→Loon→Kookaburra→Cockatoo→Starling 2029) with a coherent qLDPC error-correction thesis
Weaknesses
- Low-single-digit organic top-line growth (FY25 +1%); Q1 FY26 +9% reported is currency-flattered (+6% cc)
- Consulting (~⅓ of revenue) is low-margin and decelerating (+1% cc Q1 FY26), and self-disrupted by agentic AI
- Quantum generates negligible disclosed revenue (~$1B cumulative) — a science program, not yet a business
- High gross debt ($66.4B) and reliance on serial M&A to manufacture software growth
- GenAI book skewed 80%+ to consulting, not high-margin software
Opportunities
- Community-verified quantum advantage by end-2026 — a narrative/valuation catalyst
- Agentic-AI data foundation (watsonx + Confluent real-time streaming) for the enterprise AI buildout
- Mainframe-AI inference (z17 on-chip) monetizing on-prem GenAI where data-gravity/regulation keeps workloads off public cloud
- Quantum-safe cryptography migration (post-quantum security) — IBM is a standards leader (NIST PQC), a multi-year enterprise refresh cycle
- Quantum-as-a-service revenue scaling as error-corrected systems reach commercial utility late-decade
Threats
- Competing quantum modalities (Google superconducting/error-correction, Quantinuum & IonQ trapped-ion) reaching useful fault-tolerance first
- Agentic AI structurally deflating the consulting/labor-arbitrage model
- Hyperscalers (Microsoft Azure Quantum, AWS Braket, Google) bundling rival quantum hardware + owning the cloud distribution layer
- Macro/IT-budget cyclicality hitting consulting and enterprise software deal timing
- Mainframe secular decline resuming once the current Z-cycle laps tough comps
Moats, dependencies & bottlenecks
Moats
Mission-critical, decades-deep switching costs; current AI-inference super-cycle (+51% Q1 FY26) extends the runway.
De-facto developer standard for quantum programming; ecosystem network effects, though rivals are building their own stacks.
Sticky enterprise standard for hybrid/multi-cloud; high switching costs.
Deep Fortune-500 access and governance credibility, but the consulting model itself is being deflated by agentic AI.
Large patent estate and in-house fab; but a competing modality reaching fault-tolerance first could leapfrog the lead.
Dependencies
Consulting and software deal-timing are sensitive to IT-spend cycles.
Infrastructure growth laps tough comps once the current Z-cycle matures.
Starling 2029 is unproven engineering; superconducting scaling/error-rate risk is real.
Dilution refrigerators and superconducting fab are specialized, low-volume supply chains.
Software growth leans on serial acquisitions that must be integrated and not impair the balance sheet ($66.4B debt).
Intense competition for quantum and AI talent vs Google/Microsoft/startups.
Advantages
- Self-funds the entire quantum moonshot from ~$14.7B/yr operating cash flow — no dilution, unlike the pure-plays that issue equity
- Distribution: existing Fortune-500 relationships to sell quantum-as-a-service and post-quantum security into
- Full-stack control — hardware (in-house fab) + software (Qiskit) + cloud access + algorithms + consulting to deploy it
- Most-detailed public fault-tolerant roadmap with a coherent error-correction (qLDPC) thesis
- Diversification: the stock works on cash flow even if quantum disappoints — asymmetric optionality
Weaknesses
- Quantum is immaterial to revenue today (~$1B cumulative, not disclosed) — the program is a science/optionality story, not a business
- Low-single-digit organic growth; Q1 FY26 headline growth is currency-flattered
- Consulting (~⅓ of revenue) is low-margin, decelerating, and self-cannibalized by agentic AI
- Heavy reliance on serial M&A to manufacture software growth; $66.4B gross debt
- Modality risk: superconducting may not be the winning architecture for fault-tolerance
Bottlenecks
- Quantum error rates / physical-qubit overhead — the core technical gate to useful fault-tolerance (qLDPC aims to cut overhead ~90% but is unproven at scale)
- Cryogenic scaling and inter-module connectivity (l-couplers / Cockatoo 2027) for distributed quantum computation
- Consulting margin structure — labor-intensive delivery caps profitability and is self-disrupted by agentic AI
- Low organic growth ceiling — the cash-flow base grows low-single-digits, limiting multiple expansion absent a quantum/AI re-rate
- Balance-sheet leverage ($66.4B debt) constrains M&A pace and rate sensitivity
Top signals & trends
Top signals
Beat on revenue, EPS, and FCF — Software +11%, Infrastructure +15%. (Q1 FY26)
Market wanted a guide-up; a held guide at a multi-year-high multiple read as 'priced-in'. (Apr 2026)
z17 AI super-cycle is real and high-margin, but laps hard comps later in FY26. (Q1 FY26)
A 2H26 narrative catalyst; verification by an independent community would be a credibility milestone. (Nov 2025)
Confirms quantum is immaterial to the P&L today — a free option, not a driver. (CNBC, Feb 2025)
The labor-arbitrage services engine is decelerating and self-cannibalized by agentic AI. (Q1 FY26 / Q4 FY25)
Strengthens real-time data for agentic AI; adds integration risk + leverage; helps 'organic' software optics. (Q1 FY26)
Hardware cadence is on-schedule — execution against the public roadmap remains the key quantum tell. (Nov 2025)
Trends
Drives watsonx + Confluent real-time data + consulting demand; 2026 'year of agents'.
z17 on-chip inference monetizes the mainframe install base.
IBM leads on roadmap clarity but faces credible multi-modality competition; winner-take-most risk both ways.
Multi-year enterprise security refresh where IBM is a standards leader — a near-term, real quantum-adjacent revenue stream.
Cloud distribution layer could commoditize hardware access and disintermediate IBM's QaaS.
The labor-arbitrage services model is structurally pressured by the same AI IBM sells.
Ecosystem & competitor graph
Suppliers feed the company; customers pull from it. Line thickness shows the strength of each tie (supply-chain dependency, customer earnings contribution). Hover to isolate a tie.
Various cryogenics/dilution-refrigerator vendors (e.g. Bluefors — private) Sub-Kelvin cooling hardware essential for superconducting qubits
GlobalFoundries / specialized fabs + IBM's own Albany/Poughkeepsie facilities Superconducting chip fabrication; IBM does substantial in-house fab
Test/measurement + control-electronics & RF component suppliers Qubit control stack (AWGs, FPGAs, microwave electronics)
Real-time data streaming now an internal supplier to watsonx/agentic-AI stack
JPMorgan Chase) IBM Quantum Network members exploring optimization/risk; also core mainframe + consulting buyers
Quantum Network materials/optimization research; enterprise IT customer
defense, allied governments) Quantum access, HPC integration, post-quantum cryptography migration
Fortune 500 enterprises & banks (mainframe + Red Hat + consulting) The cash-flow base; ~40% of Fortune 500 touch Confluent, large IBM Z install base
Qiskit developer ecosystem + IBM Quantum Network access
Superconducting peer; Willow chip (late-2024) showed exponential advantage on a benchmark and leads on quantum error-correction research. Deep-pocketed and owns Google Cloud distribution.
Azure Quantum aggregates rival hardware; topological-qubit (Majorana 1) bet plus the cloud distribution layer and enterprise relationships IBM also sells into.
Trapped-ion leader on gate fidelity and quality metrics (H-series); the strongest pure-play technical rival on quality. IPO-track.
Trapped-ion pure-play; leads on algorithmic-qubit benchmarks for near-term algorithms; aggressive networking/acquisition strategy. High-multiple quantum pure-play.
Superconducting pure-play, same modality as IBM but far smaller scale/balance sheet.
Quantum annealing (and gate-model) for optimization; different problem class, commercial today but niche.
Cloud-distribution competitor aggregating third-party quantum hardware; Ocelot cat-qubit research effort.
Direct competitor to IBM Consulting in enterprise GenAI/agentic-AI services — the consulting-disruption battleground.