Buy IBM as investors underappreciate the strength of its software business, says JPMorgan

International Business Machines should be bought due to an "underappreciated" opportunity in its growing software business, according to JPMorgan. The investment bank upgraded the legacy tech name to overweight from neutral.

It also hiked its price target on shares to $291 from $270, implying 15% upside from Monday's close. "We are upgrading to Overweight with greater confidence in a 2H'26 … software acceleration following a deeper look at IBM's software business," analyst Brian Essex said Tuesday in a note to clients.

"Software continues to drive better recurring revenue, margins, profitability, and cash flow." IBM YTD mountain IBM year to date Software has increasingly become a major driver of business growth for IBM, representing roughly 45% of revenue and about two-thirds of consolidated profit, the analyst noted. "We view the continued shift toward software as positive considering the higher-margin, ratable nature of software with better cash conversion and a higher-quality earnings stream that supports a higher multiple than the hardware and services businesses," Essex wrote.

He added that IBM's four software pillars – hybrid cloud, automation, transaction processing and data – could operate as a flywheel that supports IBM infrastructure investments. "The durability of this engine is underappreciated," the analyst said.

JPMorgan's call falls in line with consensus on the Street. Of the 25 analysts covering IBM, 15 have a buy or strong buy on the stock, LSEG data shows.

Shares have fallen nearly 15% in the year to date.