By Mackenzie Tatananni
Shares of International Business Machines suffered their worst drop in more than 25 years on Monday. That makes the stock more appealing, according to UBS.
Analyst David Vogt raised his rating on the stock to Neutral from Sell in a research note Wednesday, saying the balance between risks and potential rewards is now more favorable. Other analysts have written positively as well.
Vogt assigned the stock a $236 price target. IBM was up 3.9% at $238.18 on Wednesday, adding to the gains it eked out on Tuesday.
Concerns over how artificial intelligence could disrupt the tech industry have taken center stage lately, but there was more behind Vogt's previous Sell call than that. Vogt pointed to "a string of uneven quarters" in 2025, with shares underperforming the S&P 500 by nearly 27% over the past 12 months. Strong earnings at the end of January failed to lift the stock, which had fallen more than 22% in 2026 through Tuesday's close.
While Vogt was previously bearish on what he called IBM's inconsistent execution and heavy reliance on acquisitions to drive growth, he said "a series of factors have driven a de-rating that better reflects IBM's prospects and is now more accurately captured in IBM's valuation."
The analyst said investors might dispute his call, given concern that Anthropic's Claude Code tool will disrupt IBM's mainframe business. But in his view, the share price already reflects that danger.
As other analysts have mentioned, IBM's strength is its ability to hang onto clients and spur repeat purchases. That makes it unlikely that customers will move away from using its mainframes toward decentralized platforms -- a potential shift known as mainframe disintermediation -- over the next several years.
Morgan Stanley analyst Erik Woodring echoed this point. "Do we believe IBM faces some degree of AI disruption risk due to recent innovations with Generative AI? We do," Woodring wrote in his own research note Wednesday. "But the COBOL-based mainframe remains deeply embedded in large enterprises."
IBM has survived multiple technological revolutions in its centurylong lifetime. As recently as the past decade, IBM has ridden out the transition to software as a service and cloud-native computing, or the development of applications that can integrate into any cloud environment.
"The mainframe serves as the backbone for the world's largest enterprises managing the most complex and critical workloads," Woodring wrote, ticking off banking systems, airline reservations, and transaction processing as a few examples. "So the question remains, do enterprises want to modernize off Z, [IBM's mainframe business]?" The analyst isn't convinced.
In any case, IBM is acutely aware that if it doesn't move to deploy AI, it will get left behind. In May, the company expanded the capabilities of its Watsonx Orchestrate platform for users looking to build, deploy, and manage AI agents.
Melius Research analyst Ben Reitzes wrote Tuesday that IBM was positioning itself as "the enterprise orchestrator of AI deployment" rather than putting out its own AI models to go head-to-head with companies like Anthropic and OpenAI.
Still, history tends to repeat itself, and sentiment can be a real drag on shares. "As we've seen over the last 6 months, uncertainty -- especially uncertainty that impacts the terminal value of a software stock -- can lead to a prolonged period of what seems like irrational selling pressure," Woodring wrote Wednesday.
He believes shares will remain volatile and find a floor only after one of several potentially positive factors pans out. That could mean upside to 2026 free cash flow estimates or "a critical announcement on quantum" computing this year.
Until then, he is opting to stay on the sidelines. Morgan Stanley rates the stock at Equal Weight with a $247 price target.
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
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(END) Dow Jones Newswires
February 25, 2026 12:27 ET (17:27 GMT)
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