Shares of International Business Machines Corp. (IBM) surged nearly 5% in premarket trading Tuesday after JPMorgan Chase & Co. upgraded the technology giant, pointing to strengthening software revenue and growing adoption of artificial intelligence technologies.
JPMorgan analyst Brian Essex raised his rating on IBM to Overweight from Neutral and lifted the price target to $291 from $270, reflecting increased confidence in the company's ongoing transformation toward a software-centric business model.
“Expectations for software acceleration in the second half of 2026 have strengthened our outlook,” Essex wrote in a note to clients. The upgrade comes as IBM continues its multiyear pivot from legacy hardware and services to a platform built around hybrid cloud and AI.
Software Segment Drives Profit Growth
JPMorgan highlighted several catalysts, including momentum from Red Hat and OpenShift migration activities. OpenShift, IBM's container platform, is increasingly being adopted by enterprises for AI workloads. The analysts also noted accelerating automation demand following IBM's acquisition of HashiCorp, which management says is gaining traction with senior corporate executives.
Software now accounts for roughly 45% of IBM's revenue but generates approximately two-thirds of consolidated profit, according to JPMorgan. “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,” the analysts said.
If IBM becomes a significant beneficiary of rising AI demand, the stock could see further valuation expansion, JPMorgan added.
Wall Street Raises Estimates
Separately, Morgan Stanley raised its price target on IBM to $267 from $225 while maintaining an Equal Weight rating. The firm noted that recent earnings reports from Dell and Hewlett Packard Enterprise showed enterprise server demand remaining stronger than expected despite higher prices driven by compute shortages and growing AI infrastructure needs.
Morgan Stanley increased its earnings-per-share estimates by 5% to 6% for companies with exposure to computing demand, saying Wall Street expectations for 2026 and 2027 “look too low.”
For more on AI-driven upgrades, see Enphase Surges 8% on Barclays Upgrade, AI Data Center Transformer Play and AMD Jumps 5.9% on Citi Upgrade, $575 Target on Meta AI GPU Deal.
Quantum Computing Gets White House Boost
IBM may also benefit from fresh U.S. government support for quantum computing. CEO Arvind Krishna attended the White House on Monday as President Donald Trump signed two executive orders aimed at accelerating domestic quantum computing development and strengthening cybersecurity against quantum-powered threats.
One order directs the creation of “the first-ever quantum computer powerful enough for scientific research,” with a goal of placing the system in a national laboratory by 2028. The other accelerates the federal government's transition to post-quantum cryptography by 2031.
“When President Trump published a letter to me in early 2025, he prioritized quantum as a key industry for America to lead the world alongside AI and nuclear energy,” said Michael Kratsios, the president's top advisor on science and technology policy.
Industry participants are working toward achieving fault tolerance by the end of the decade, a milestone that would allow quantum computers to operate reliably even when individual components fail.
The policy initiatives add another potential growth catalyst for IBM as it expands in AI, hybrid cloud software, and next-generation computing. For context on broader tech upgrades, see Intel Stock Surges 4% After BofA Upgrade, $135 Target on AI CPU Demand.
This article is for informational purposes only and does not constitute financial advice.
