International Business Machines continued itsrecent hot streakon Monday afterBarclaysissued its first rating on the stock. Quantum computing, surprisingly, had little to do with the bullish call.
Surprising considering the amount of attention Big Blue has gotten for its quantum effort in the past two weeks, starting with a federal infusion of $1 billion to build a standalone quantum foundry, followed by a commitment from the company to invest more than $10 billion in quantum research, development, and manufacturing over the next five years.
But Barclays analyst Raimo Lenschow is focused on a different aspect of the business: IBM’s concentration in software, which is behind nearly half the company’s revenue and most of its profit. Lenschow initiated coverage on the shares at Overweight with a $350 price target on Monday.
IBM stock surged 9.8% to $327 in the premarket session. Futures for the tech-heavy Nasdaq Composite ticked up 0.3%.
In Lenschow’s view, IBM’s infrastructure software is tailored to large, highly regulated businesses, creating a highly loyal customer base that isn’t at risk of being upended by artificial intelligence.
He isn’t the first to make such a call. Oppenheimer analyst Param Singh had similar reasoning back in January when he argued that IBM’s software portfolio was “sticky,” meaning clients repeatedly return to the products even though alternatives exist.
Evercore ISI analyst Amit Daryanani echoed this argument in a note the following month as AI disruption fears rocked the market. The view was reaffirmed by Citi Research analyst Fatima Boolani, who noted in April that IBM’s software and hardware were entrenched “across the most critical points of the world’s largest, most complex IT infrastructures.”
