Unafraid of Red Hat's slowing growth, Wall Street supports IBM (IBM.US): It's just a "instinctual decline", AI business prospects still looking good.

Although IBM's previous performance and guidance have exceeded market expectations, Wall Street analysts say that concerns about its software business may make investors uneasy. This is mainly due to the revenue growth of its hybrid cloud business (primarily driven by Red Hat) increasing by 14% (12% when calculated at fixed exchange rates), which is below analysts' expectations. However, Wall Street analysts believe that the drop in IBM's stock price due to the slowdown in Red Hat is just a "knee-jerk panic reaction" and does not change the company's correct growth trend in the artificial intelligence market. Stifel analyst David Grossman remains optimistic about the overall performance, but he also warns that a "software reset" may have a negative impact on the company's stock in the short term. Given the 18% increase in the stock price in the past seven weeks and the challenging market conditions before the announcement of the financial results, Grossman stated that the revaluation of the stock was "not surprising." Grossman wrote in a report to clients, "Fundamentally, the company is in good shape, and we still maintain a 'buy' rating; however, defensive investors may experience some volatility in the short term." Wedbush is also optimistic about these results, pointing out IBM's $9.5 billion order backlog in the generative artificial intelligence business, indicating that projects related to artificial intelligence are progressing "significantly." Wedbush rates IBM as "outperforming the market" with a target price of $325. Wedbush analyst Dan Ives wrote in a report to clients, "We still believe that IBM is well positioned in the current demand trend for hybrid cloud and artificial intelligence applications, as more and more enterprises want to fully utilize these capabilities in their organizational workflows. If the stock experiences a moderate panic-driven decline, we will buy in." Bank of America Corp analyst Wamsi Mohan slightly lowered the target price for IBM from $315 to $310 after the earnings announcement, stating that the company is currently in the "right growth trajectory", despite "product mix deviations." BofA reiterated a "buy" rating for IBM, stating that "they are pushing out higher-margin software businesses in their hybrid strategy, driving strong free cash flow, and we expect earnings expectations to continue to rise." Mohan wrote in a report to clients, "Although the growth performance of the software business is not satisfactory, IBM has raised its guidance for total revenue growth in 2025 to over 5%, pre-tax profit margin improvement by over 1%, and free cash flow expectations to around $14 billion. Regarding RHT, management acknowledged the quarter-over-quarter slowdown (execution challenges and lower-than-expected consumption services) and adjusted their expected growth in 2025 to around 14% year-over-year."