There are no highlights outside of the software business? Morgan Stanley gives IBM (IBM.US) a "market perform" rating before its results.

IBM (IBM.US) will release its financial report after the closing of the market on Wednesday. Morgan Stanley has issued a research report, giving IBM a "market perform" rating with a target price of $237. Morgan Stanley expects IBM's first-quarter financial report/second-quarter guidance to meet expectations, with revenue growth in the 2025 fiscal year (calculated at a fixed exchange rate exceeding 5%) and free cash flow guidance remaining unchanged at $13.5 billion. Morgan Stanley slightly lowered its expectations for IBM's consulting and infrastructure businesses, but believes that IBM can still maintain its position as a short-term hedge asset (despite the high valuation) driven by growth in software business. There are both positive and negative factors this quarter, but Morgan Stanley believes that ultimately there will be a first-quarter performance and second-quarter guidance that is consistent with market expectations, and even slightly higher than market and bullish expectations. Specifically, Morgan Stanley expects slight improvements in the organic prospects of the software business, the early termination of the hybrid cloud platform, acquisitions of DataStax and Hakkoda, and a slight easing of foreign exchange resistance. These factors essentially offset the moderate downward adjustment of expectations for consulting and infrastructure business, which includes factors such as DOGE budget cuts and the impact of a softer/volatile macroeconomic environment on IBM's partially cyclical business. Although the current stock price already reflects the above expectations IBM's stock trades at a P/E ratio of 20.5, reaching a historical high, and the PEG ratio is significantly higher than that of large software companies and peers in the AI field Morgan Stanley still believes that in the current market environment, even facing headwinds in consulting and infrastructure business, presenting a "meeting expectations" quarterly performance at the current valuation level is attractive enough for investors.