The software and AI push from IBM has another believer on Wall Street. IBM stock gained in trading Monday after Goldman Sachs initiated coverage with a buy rating.
The Goldman Sachs analysts set a price target of 200 for IBM stock, implying 16% upside from its closing price Friday. The analysts cited a "significant overhaul" of IBM's software portfolio, including its 2019 acquisition of cloud software company Red Hat.
"We believe that IBM is in the middle innings of pivoting its portfolio to a suite of modernized application and infrastructure software and a broader array of services, away from a legacy-focused portfolio," Goldman Sachs analyst James Schneider wrote.
Meanwhile, IBM's "organic investments in AI offerings (WatsonX) have finally begun to pay dividends," Schneider added.
On the stock market today, IBM stock gained 1.5% to close at 175.01.
IBM Stock: Up 10% This Year
The bullish rating from Goldman Sachs was included in a broader report on the IT industry. Goldman Sachs also initiated Globant with a buy rating.
The IT services sector is currently in a "cyclical correction" driven by macroeconomic pressures and companies shifting their spending toward AI, Schneider wrote.
"Generative AI is likely to ultimately be a net benefit for the sector, but it may take some time to realize these benefits because of the technical debt corporations must overcome before they can realize the benefits of AI," the client note said.
While IBM got off to a strong start to 2024, shares have slumped since reaching a more than decade high near 199 in March. A rally that started late in 2023 offered signs IBM was emerging from nearly a decade of struggles.
But IBM stock fell 8% in late April after reporting lower-than-expected sales for its first quarter. The company also announced plans for a $6.4 billion acquisition of cloud-software company HashiCorp.
Shares of IBM are up 7% this year, including Monday's gains. The S&P 500, meanwhile, is up nearly 14.2%. But IBM has added 35.2% over the past 12 months, outpacing a 25.3% gain for the S&P 500.
Meanwhile, IBM stock has an IBD Composite Rating of 81 out of a possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, IBM stock's IBD Relative Strength Rating is 70 out of 99.
