Thinking about what to do with International Business Machines right now? You are not alone, and honestly, it is a fair question given how much IBM has shifted gears lately and how the market has noticed. If you have been following the stock, then you know that IBM is not the “steady blue chip” it once was. Over the past year, the company has delivered a total return of nearly 27%, handily outpacing the S&P 500. If you zoom out further, IBM’s performance gets even more interesting, with a 104% return over the past three years and an impressive 154% over five.
These numbers do not move in straight lines. In the last month, IBM shares pulled back almost 15%, even as its year-to-date gain still stands at roughly 10%. Some of this recent volatility can be traced back to market rotation into tech and investor reactions to IBM’s annual results, which included solid revenue growth and a notable 12.6% net income expansion. The broader market has also been reassessing risk around big tech, but IBM’s position as a cloud-focused, AI-enabled player appears to be gaining credibility with analysts. This has become more evident after its discount to price target narrowed to around 16%.
In terms of valuation, IBM currently scores 2 out of 6, meaning it screens as undervalued in just two major checks. This suggests it is not exceptionally cheap, but not obviously overpriced either. As we dig into how analysts reach those numbers—by looking at everything from price-to-earnings ratios to discounted cash flow—keep in mind that sometimes the most telling approach to valuation is not the most obvious one. We will get there, but let us break down the methods most investors and rating systems use first.
International Business Machines delivered 26.5% returns over the last year. See how this stacks up to the rest of the IT industry.
The Discounted Cash Flow (DCF) model projects a company’s future cash flows and discounts them back to today’s dollars, producing an estimate of what the company should be worth right now. For International Business Machines, the latest twelve months’ Free Cash Flow stands at approximately $11.5 billion. Analysts expect this number to grow steadily, reaching about $22.6 billion in 2035, reflecting IBM’s positive cash generation outlook.
Plugging these projections into a two-stage DCF model, IBM’s estimated fair value is $273.66 per share. This is about 11.4% above the current market price, suggesting the stock is 11.4% undervalued based on its future cash flows.
Story Continues
The takeaway for investors is that IBM’s fundamentals, as measured by discounted cash flow, imply there is still a modest cushion of value here. The stock does not appear to be a screaming buy, but it is not overpriced either.
Result: UNDERVALUED
IBM Discounted Cash Flow as at Aug 2025
Our DCF analysis suggests International Business Machines is undervalued by 11.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.
The price-to-earnings (PE) ratio is the go-to valuation tool for profitable companies like International Business Machines because it shows how much investors are willing to pay for each dollar of current earnings. It is especially useful for established firms, as it distills growth expectations and an assessment of risk into a single, easy-to-compare number. Companies with faster growth or lower risk typically command higher PE ratios, while slower growth or higher risk usually pulls that number down.
IBM’s current PE ratio sits at 38.6x, which stands well above both the IT industry average of 29.7x and the peer average of 16.5x. On the surface, this suggests IBM’s shares are priced at a significant premium. However, to get a clearer picture, it helps to look at the Fair Ratio, a proprietary benchmark that weighs factors such as IBM’s profit margins, size, and future growth prospects. In IBM’s case, the Fair Ratio stands at 42.7x, indicating what would be considered a balanced valuation given the company’s specifics.
Since IBM’s actual PE ratio is only slightly below the Fair Ratio, the stock appears to be priced just about right. Investors are not dramatically overpaying or underpaying for its anticipated growth and profitability.
Result: ABOUT RIGHT
NYSE:IBM PE Ratio as at Aug 2025
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
While traditional valuation metrics focus on numbers alone, Narratives offer a smarter approach by letting you tell the story behind those numbers, tying your personal perspective on a company to financial forecasts and a fair value estimate.
A Narrative links what you believe about a business, such as its future revenue growth, earnings, and profit margins, with the company’s story. This perspective is then translated into a clear, data-driven fair value. This method is accessible to everyone and forms the core of decision making on the Simply Wall St platform. Millions of investors can compare their viewpoints, update them as new news or earnings emerge, and see instantly whether their chosen Narrative suggests the stock is under- or overvalued.
By comparing your Narrative-based fair value with the current market price, you receive a dynamic signal for when to consider buying or selling. Your outlook stays aligned with the latest market developments. For International Business Machines, some investors see a compelling future with price targets as high as $350, while others remain more cautious, setting their target at $198. This highlights how different Narratives can lead to varying investing decisions even when considering the same company.
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: $281.77
Undervalued by: 13.9%
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. Organizations continue to modernize their IT infrastructure.
Investments in generative AI, the z17 mainframe, and Red Hat OpenShift are helping differentiate IBM and could boost both software and infrastructure revenues and profitability.
Risks include macroeconomic uncertainty, currency volatility, and competitive pressures. Analysts’ consensus price target is significantly above the current share price if these catalysts materialize.
🐻 International Business Machines Bear Case
Fair Value: $198.00
Overvalued by: 22.5%
Forecast Revenue Growth: 4.5%
Strong competition from larger cloud providers and customer migration to cloud-native solutions threatens IBM’s traditional business and limits upside for revenue and margins.
Operational challenges, including high compliance costs and significant debt, could constrain IBM’s ability to invest for organic growth and weaken long-term financial strength.
Without clear evidence that new initiatives can replace fading legacy revenues, analysts in this scenario believe the market’s expectations are too high compared to what IBM can realistically deliver.
Do you think there’s more to the story for International Business Machines? Create your own Narrative to let the Community know!
NYSE:IBM Community Fair Values as at Aug 2025
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
