Thinking about what to do with International Business Machines stock right now? You are not alone. With shares of IBM up a solid 2.0% in just the past week and delivering an impressive 168.2% return over five years, investors are rightfully taking a closer look. The momentum is not just a short-term story either, as the stock has climbed 15.2% year-to-date and is up 21.3% over the past twelve months. What is behind this steady positive performance, and is it likely to continue?
Recent headlines may have something to do with the renewed enthusiasm. IBM is making waves as a leader in the race for quantum computing, positioning itself alongside giants like Google and Microsoft in a high-stakes competition to achieve what experts call “Quantum advantage.” This kind of cutting-edge tech news, combined with past innovations and strategic management changes, has kept investor interest strong, even as some headlines have raised questions around broader tech industry topics.
But here is the real question: does the price accurately reflect IBM’s true value? Valuation is where things get interesting. According to a quick check across six standard valuation metrics, IBM is undervalued in 2 out of 6, giving it a value score of 2. That number might raise eyebrows among cautious investors and offer a clue to potential upside or hidden risks.
Up next, we will break down each major valuation approach, from traditional discounted cash flows to multiples, unpacking what goes into the score and where the usual methods might fall short. Stick around, because at the end, we will share a smarter way to cut through the noise on IBM’s true worth.
International Business Machines scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Discounted Cash Flow (DCF) model forecasts the company’s future free cash flows and then discounts those projections back to today’s dollars to estimate what the business is worth right now. For International Business Machines, this approach begins with a look at its latest reported Free Cash Flow, which stands at $11.48 billion. Analysts provide concrete estimates for the first five years, projecting steady growth. Simply Wall St extrapolates further to cover a full decade.
By 2027, Free Cash Flow is forecasted to reach approximately $15.52 billion, with projections extending out to $21.31 billion in 2035. Early estimates rely on analyst input, while long-term numbers are modeled based on historical data and anticipated trends within the company and broader IT industry.
Overall, the DCF model suggests an intrinsic fair value for IBM shares of $258.09. With the current market price only about 1.8% below this figure, the model implies that IBM’s stock is priced almost exactly at its intrinsic value according to these cash flow assumptions.
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.
IBM Discounted Cash Flow as at Sep 2025
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 the go-to valuation tool for profitable companies because it directly ties a company’s current market price to its earnings power. For IBM, which posts consistent profits year after year, the PE ratio offers a clear snapshot of how much investors are willing to pay for each dollar of earnings.
A “normal” or “fair” PE ratio depends on several moving parts. Fast-growing companies often command higher multiples because investors expect future profits to rise, while higher perceived risk tends to hold valuations down. The industry average PE in the IT sector stands at 29.04x, and IBM’s direct peers trade at around 16.06x. In contrast, IBM’s current PE ratio is 40.30x, notably above both those benchmarks.
However, quick peer or industry comparisons can miss crucial details. That is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio, here calculated at 43.61x, factors in IBM’s unique mix of earnings growth, profit margins, company size, industry nuances, and risk profile for a holistic judgment. Because this figure is tailored, it provides a stronger signal of valuation than blunt averages.
With IBM’s actual PE of 40.30x being slightly below the Fair Ratio of 43.61x, the stock appears to be valued just about right by this key measure.
Result: ABOUT RIGHT
NYSE:IBM PE Ratio as at Sep 2025
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 is an even better way to understand valuation, so let us introduce you to Narratives, a dynamic, story-driven framework that helps you connect your outlook on a company with clear financial forecasts and a real estimate of fair value.
A Narrative is simply your perspective, or “story,” about a business, describing where you see IBM heading, which drivers matter most, and what risks or opportunities lie ahead. This is linked directly to your assumptions about future revenue growth, profit margins, and share valuation.
Unlike passive numbers or static analyst targets, Narratives are accessible and easy-to-build tools on Simply Wall St’s Community page, used by millions, which help you tie your beliefs about IBM’s business to a share price and see, in a transparent and live format, how the story stacks up against today’s market price.
This means you can make smarter buy or sell decisions by seeing not just what IBM is worth according to your Narrative, but also how that value changes instantly when new earnings or headlines arrive.
For example, some investors believe that rapid AI and hybrid cloud adoption could justify a fair value of $350 per share for IBM. Others, concerned about legacy business pressures and competition, see a lower fair value closer to $198. This shows how the numbers shift when the story shifts.
For International Business Machines, we’ll make it easy for you with previews of two leading International Business Machines Narratives:
🐂 International Business Machines Bull Case
Fair value: $281.32
Current price is 9.9% below this fair value
Expected revenue growth: 5.1%
IBM’s focus on hybrid cloud, AI, and acquisitions is expected to drive revenue growth, margin expansion, and build client trust as businesses modernize their IT infrastructure.
Investments in advanced technology such as the z17 mainframe and generative AI should enhance differentiation and pricing power, supporting higher infrastructure revenue and net margins.
Analysts forecast earnings and profit margins to rise steadily. However, they highlight currency volatility and macroeconomic uncertainty as key risks. Analysts’ consensus price target is just 7.9% above today’s share price, signaling a “fairly priced” view.
🐻 International Business Machines Bear Case
Fair value: $198.00
Current price is 28.0% above this fair value
Expected revenue growth: 4.6%
The dominance of hyperscale cloud providers and the shift toward public cloud threaten IBM’s core business, which could cap long-term revenue and margin growth potential.
Rising compliance costs, large pension liabilities, and acquisition-related debt could constrain IBM’s ability to invest organically, which may limit financial flexibility and longer-term earnings power.
Despite strategic moves into AI and hybrid cloud, bearish analysts believe revenue growth will lag expectations and that the current market price is too high relative to IBM’s outlook.
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 Sep 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.
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