IBM Shares Gain as Jefferies Highlights Undervalued Software Potential

A recent upgrade from Jefferies Financial Group has provided fresh momentum for International Business Machines Corp. (IBM), with the stock trading near its 52-week high. The firm’s analysts point to a significant re-rating opportunity within IBM’s software division, though traditional valuation metrics suggest investors should temper their enthusiasm.

Valuation Discount Presents Opportunity, Jefferies Argues

In a move that has captured market attention, Jefferies upgraded IBM from “Hold” to “Buy” on January 6. Analyst Brent Thill also raised the firm’s price target substantially, from $300 to $360 per share. This new target suggests an approximate 20% upside from the previous closing price of $302.23.

The core of Jefferies’ bullish thesis rests on an anticipated acceleration in IBM’s software revenue by 2026. The analysts highlight several key growth drivers they believe the market is undervaluing:
* Red Hat’s Momentum: Continued strength in the hybrid cloud platform segment.
* Strategic Acquisitions: Potential synergies from the integration of HashiCorp and the planned deal with Confluent.
* Stable Foundation: Reliable, recurring revenue from the legacy mainframe business.

A central argument for investment is IBM’s current valuation discount relative to large-cap software peers. Jefferies estimates a 2027 price-to-earnings (P/E) ratio of 26 for IBM, which sits below the sector average of approximately 35. This perspective has found some agreement elsewhere on Wall Street; RBC Capital increased its target to $350, while Stifel Nicolaus set a $325 target.

Should investors sell immediately? Or is it worth buying IBM?

Strong Operational Performance Fuels Confidence

The optimistic analyst outlook is supported by demonstrable operational strength. IBM’s recent extension of its partnership with The Wimbledon Championships as the official technology partner reinforces its competitive positioning in the enterprise AI solutions market.

The rally is fundamentally underpinned by robust third-quarter results. The company reported earnings per share of $2.65, surpassing estimates by $0.20. Year-over-year revenue climbed 9.1% to $16.33 billion. This solid operational execution has bolstered investor confidence, reflected in a share price gain of nearly 40% over the past twelve months.

Lofty Expectations Warrant Investor Caution

Despite the analyst enthusiasm, IBM’s shares are no longer trading at a bargain basement price. The stock currently commands a P/E ratio above 36. Furthermore, a price/earnings-to-growth (PEG) ratio of 2.70 indicates a rich valuation by historical standards, especially when compared to a lower industry average. Investors are presently paying a premium for expected future growth, which narrows the margin for error if performance disappoints.

The next critical test will arrive on January 28, 2026, when IBM discloses its full-year results. Market experts are forecasting annual earnings per share of $10.78. Whether the stock can achieve Jefferies’ elevated price target will depend heavily on the company’s ability to meet these high expectations.