Is IBM Fairly Priced After Recent AI and Cloud Partnership News in 2025?

• Ever wondered if International Business Machines is a smart buy at today’s prices? Let’s break down the numbers and see if there’s hidden value waiting to be uncovered.
• IBM’s stock has been on a rollercoaster lately, rising 2.3% over the past week, but posting a modest 1.1% loss in the last 30 days. The year-to-date return still stands at an impressive 38.3%.
• Recent headlines highlight IBM’s push into artificial intelligence and cloud technology partnerships, including new collaborations to expand its AI-powered business solutions and increased investments in cybersecurity initiatives. These moves have caught investor attention and could be fueling the recent volatility in the share price.
• According to our valuation model, IBM scores just 1 out of 6 on our value assessment. This signals only one area where the stock currently looks undervalued, but there are several ways to look at valuation. We’ll cover the most insightful approaches shortly, along with a fresh perspective you won’t want to miss at the end.

International Business Machines scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: International Business Machines Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's true value by projecting its future cash flows and discounting them back to today. This approach helps investors assess whether a stock might be overvalued, undervalued, or fairly priced based on its potential to generate cash in the years ahead.

For International Business Machines, the current Free Cash Flow (FCF) stands at $11.67 Billion. Analysts project FCF will grow steadily, reaching about $17.3 Billion by 2028. In the longer term, extrapolations suggest FCF could approach $23 Billion by 2035, with annual growth rates declining over time. It is important to note that only the first five years are based on analyst estimates, while projections beyond that rely on extrapolation.

According to this model, the estimated intrinsic value of IBM shares is $283.58. At current prices, the DCF signals IBM shares are about 7.2% overvalued compared to this intrinsic worth. While that is a moderate difference, it suggests the stock is trading fairly close to what the underlying cash flows support today.

Result: ABOUT RIGHT

International Business Machines is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for International Business Machines.

Approach 2: International Business Machines Price vs Earnings

For consistently profitable companies like International Business Machines, the Price-to-Earnings (PE) ratio is a go-to valuation tool. The PE ratio helps investors understand how much they're paying for every dollar of the company's current earnings. A higher ratio typically means the market expects stronger growth, while a lower ratio can indicate uncertainty or risk.

IBM currently trades at a PE ratio of 35.9x. Compared to the broader IT industry average of 27.2x and similar peers averaging 20.9x, IBM's valuation stands out as significantly higher. However, simple comparisons only tell part of the story, since growth prospects and company-specific risks can dramatically shift what constitutes a "fair" PE.

This is where the Simply Wall St "Fair Ratio" comes into play. The Fair Ratio is a proprietary benchmark that goes deeper than industry or peer averages. It incorporates factors such as IBM's earnings growth outlook, profit margins, market cap, risk profile, and sector trends. By factoring in these elements, the Fair Ratio offers a more tailored and accurate gauge of what investors should be willing to pay for IBM's earnings today.

Right now, IBM's Fair Ratio sits at 41.3x, just above its market PE of 35.9x. This suggests that although the stock trades at a premium to many peers, its current price is about right when taking into account its growth and risk profile as measured by the Fair Ratio.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1437 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your International Business Machines Narrative

Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your story about a company, the logic, beliefs, and expectations that shape how you interpret the numbers, forecast future revenue and earnings, and decide what a fair value looks like.

With Narratives, you link the story behind International Business Machines to your own financial assumptions, creating a bridge between what you believe will happen and the fundamental numbers that drive valuation models. This approach empowers you to see beyond simple ratios and lets you personalize your fair value based on your perspective about IBM’s technology, market challenges, or transformation roadmap.

On Simply Wall St’s Community page, Narratives are easy to access and designed for all investors, from first-timers to market veterans. They help you track whether the current price is above or below your fair value, making it easier to know when you might want to buy, sell, or sit tight.

Narratives update as soon as new news, forecasts, or earnings emerge, so your investment case evolves in real time. For example, some investors recently estimated IBM’s fair value at $350 if its cloud and AI momentum beats expectations, while others put it as low as $198 given worries about cloud competition and legacy declines.

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: $350.00

IBM is currently trading about 13.1% below this fair value estimate.

Revenue Growth Forecast: 6.14%

• Accelerated AI, hybrid cloud, and modernization adoption in regulated sectors is expected to drive sustained revenue outperformance and higher profitability for IBM.
• Integration of Red Hat, HashiCorp, and DataStax, plus advances in quantum computing and automation, should boost high-margin software and recurring revenue streams.
• The bullish outlook assumes expanding operating margins and premium valuation, but warns that legacy declines, competition, open-source disruption, and high debt could pose risks.

🐻 International Business Machines Bear Case

Fair Value: $287.09

IBM is trading about 5.93% above this fair value estimate.

Revenue Growth Forecast: 5.14%

• IBM's focus on hybrid cloud, AI, and strategic acquisitions should drive moderate revenue growth, but macroeconomic uncertainty and strong competition may impact key Consulting and Software segments.
• Margin improvements and resilience are expected from advanced technologies, cost management, and supply chain diversification, though some software and services growth may lag.
• Consensus sees IBM as fairly valued at best, highlighting risks from decelerating software growth, premium valuation compared to peers, and challenges in realizing quantum computing's full commercial potential in the near term.

Do you think there's more to the story for International Business Machines? Head over to our Community to see what others are saying!

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.

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