Is IBM’s Quantum Momentum Driving a Fair Price for the Stock in 2025?

If you are wondering whether now is the right moment to buy, sell, or simply watch International Business Machines, you are definitely not alone. It feels like every time you look, IBM’s stock is on the move again. Over the past week alone, shares have surged by 5.7%, and the momentum stretches even further back with a 12.5% jump in the last month. Year-to-date, the return already sits at 23.8%. If you had the foresight to invest three or five years ago, you would be looking at gains of 151.1% and 192.5%, respectively. That is notable long-term outperformance, especially for a company often described as a tech old-timer.

Part of the excitement recently has been IBM’s growing leadership in emerging tech, especially quantum computing. News outlets like The Wall Street Journal and The Financial Times have highlighted how IBM is competing for pole position in the race for “quantum advantage.” This is not just a PR move, as technical breakthroughs are moving the idea of real, commercially useful quantum computers from science fiction to “maybe by the end of the decade.” While headlines have also included big names departing and some controversy overseas, most investors seem to be focusing on the growth story and IBM’s renewed tech credibility.

Of course, fast-growing stocks can look expensive in the heat of the moment. To gauge whether IBM is truly undervalued today, let’s look at a simple valuation score. IBM checks 2 out of 6 undervaluation boxes, which is a helpful starting point but not quite the full green light. Next, we will dig into the details behind each valuation check, and then I will share an even sharper lens to assess whether IBM offers real value right now.

International Business Machines scores just 2/6 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

A Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future free cash flows and then discounting those amounts back to today’s value. This approach helps investors understand what a business is truly worth based on its ability to generate cash in the future, not just current earnings.

For International Business Machines, the current Free Cash Flow stands at approximately $11.5 Billion. Analysts forecast consistent growth, with FCF expected to reach $18.7 Billion by 2029. While analyst estimates typically only go out five years, longer-term figures are extrapolated from Simply Wall St’s own model. Over the next decade, projections suggest a gradual rise in free cash flows, supported by IBM’s focus on technology leadership and operational discipline.

Based on these cash flow projections, the DCF model estimates IBM’s fair value at $286.45 per share. With the current share price trading about 5.0% below this valuation, the stock appears to be essentially in line with its intrinsic worth.

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.

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.

Approach 2: International Business Machines Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for companies that are profitable, like International Business Machines. It tells investors how much they are paying for each dollar of earnings today. For companies with steady profits and a track record of growth, the PE ratio gives a straightforward sense of how the market values those future earnings.

What counts as a "normal" or "fair" PE ratio, however, depends on more than earnings alone. Higher earnings growth or lower risk typically supports a higher PE, while slow growth or added risk can justify a lower PE. That is why it is important to compare IBM’s PE of 43.3x not just against its own history, but with some context: the IT sector’s average PE sits at 31.8x, while IBM’s peer group averages 16.0x. On the surface, IBM appears to trade at a notable premium.

This is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio is a proprietary measure reflecting earnings growth, profit margins, risk, industry context, and market cap. Unlike a raw industry average or a basic peer comparison, the Fair Ratio is designed to be much more nuanced and relevant. For IBM, the Fair Ratio is calculated at 43.8x, capturing all those factors.

Given IBM’s current PE of 43.3x is very close to the Fair Ratio of 43.8x, the market seems to be pricing the stock about in line with its fundamentals today.

Result: ABOUT RIGHT

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

Upgrade Your Decision Making: Choose your International Business Machines Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your story behind the numbers—your own perspective on a company that aligns your assumptions about its future revenue, earnings, and profit margins with a corresponding fair value. Instead of relying on a static set of valuation ratios, a Narrative connects what you believe about IBM’s strategy, technology, and risks to a transparent financial forecast. It then calculates a fair value based on those inputs.

Narratives are easy to use and available on Simply Wall St’s Community page, where millions of investors share and update their perspectives. They make the decision of when to buy or sell more actionable, as you can see at a glance whether your (or others’) Fair Value estimate supports the current price, and how new information like news or earnings will automatically update every Narrative’s assumptions and valuations.

For example, one optimistic IBM Narrative estimates a $350 fair value based on faster AI software growth and improved margins, while a more cautious view values the company at just $198, reflecting challenges from cloud competitors and declining legacy revenues. This means you can quickly see how your beliefs compare with the full range of market expectations.

For International Business Machines, here are previews of two leading International Business Machines Narratives:

🐂 International Business Machines Bull Case

Fair Value: $281.32

Undervalued by: 3.2%

Revenue Growth (3-year forward): 5.1%

• IBM’s focus on hybrid cloud, AI, and strategic acquisitions is expected to drive revenue growth, margin expansion, and strengthen client relationships in modernizing IT infrastructure.
• Investments in advanced technologies such as the z17 mainframe and generative AI are aimed at enhancing pricing power and differentiating offerings, which could boost infrastructure and software revenues.
• Analyst consensus forecasts moderate revenue and margin growth, with a price target around 8% above the current price. However, there are risks from macroeconomic conditions and global competition.

🐻 International Business Machines Bear Case

Fair Value: $198.00

Overvalued by: 37.5%

Revenue Growth (3-year forward): 4.6%

• Intense competition from leading cloud providers and the shift to cloud-native solutions are expected to erode IBM’s core business and limit sustainable revenue and earnings growth.
• Operational challenges, including rising compliance costs and a heavy debt burden, may constrain IBM’s ability to invest organically and threaten long-term financial strength.
• Despite operational momentum, the most bearish analysts view the current price as significantly overvalued, with major downside risk if legacy revenues decline more quickly than new businesses scale up.

Do you think there's more to the story for International Business Machines? Create your own Narrative to let the Community know!

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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