Angela Palumbo

International Business Machines has been around for over 100 years, and if you aren't an investor now, this Oppenheimer analyst says it's time to buy.

Param Singh initiated coverage of IBM stock with an Outperform rating and a $320 price target on Tuesday. That target implies a 28% increase from the stock's closing price of $249.27 on Monday.

On Tuesday, shares of IBM were up 2.3% to $255.17.

Singh wrote in a research note titled "Not Your Father's IBM," that the company is the third-largest infrastructure software vendor in the world after Microsoft and Amazon.com.

The analyst believes IBM will see double-digit revenue growth in its software portfolio, driven primarily by its Red Hat offerings.

Red Hat provides open-source software products to enterprises, and was acquired by IBM in 2019. Red Hat software now enables enterprises to run and manage artificial-intelligence workloads.

"Our differentiated view is based on IBM's successful pivot to a software-centric company, and expect revenue/ margin trajectory higher than consensus," Singh wrote. "We believe investors have missed IBM's transition, with the stock still covered by multiple IT hardware/services analysts."

IBM said on its fourth-quarter earnings call on Jan. 29 that software is now about 45% of its business, and much of the growth in the segment was led by Red Hat.

Enterprises are spending big on AI software in hopes of improving productivity that could lower costs down the line. Shares of ServiceNow, Salesforce, and Palantir Technologies have all jumped over the last 12 months as investors bet that this spending will continue.

"The AI Software era is now here in our view," Wedbush analyst Dan Ives wrote on Monday. "We believe the two best software plays on the AI Revolution for 2025 remain Palantir and Salesforce...with many well positioned vendors joining the AI Party like Oracle, IBM , Innodata, Snowflake, MongoDB, Elastic, [and] Pegasystems."

Write to Angela Palumbo at angela.palumbo@dowjones.com

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February 11, 2025 14:16 ET (19:16 GMT)

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