JPMorgan upgrades IBM to overweight, citing an underappreciated software engine

JPMorgan has turned more positive on IBM, upgrading the longtime technology company to overweight from neutral and lifting its price target, on the view that the market is underestimating the strength and durability of its software business. The call landed on Tuesday alongside a separate boost to sentiment, as President Donald Trump publicly praised IBM's chief executive at a White House event focused on quantum computing.

Analyst Brian Essex raised the bank's target on the stock to $291 from $270, pointing to greater confidence in an acceleration of IBM's software growth in the second half of the year. The core of the argument rests on the company's ongoing shift toward software, which Essex characterized as higher-margin and more predictable than its hardware and services lines, with better cash conversion and a higher-quality earnings stream that can justify a richer valuation multiple.

The analyst framed IBM's four software pillars, spanning hybrid cloud, automation, transaction processing and data, as a self-reinforcing engine, or flywheel, that supports the company's broader infrastructure investments. The durability of that engine, he argued, is underappreciated by investors. He pointed to specific tailwinds, including migration momentum across the company's Red Hat and OpenShift platforms, rising adoption of AI-driven container technology, and a reacceleration in automation as enterprise demand picks up.

Essex also flagged potential upside catalysts beyond the base case. He suggested there was room for the stock's valuation to expand further if IBM gains traction as a meaningful beneficiary of the build-out of AI infrastructure, or if the company makes faster-than-expected progress toward delivering a fault-tolerant quantum computer, an area where it has positioned itself as a leader.

The upgrade brings JPMorgan into line with a broadly constructive view on the Street, where a majority of the analysts covering IBM carry positive ratings. It also follows a weak stretch for the shares, which had fallen sharply since the start of the year, leaving the stock trading well below where it began 2026 even as the upgrade implied meaningful upside to the new target.

Sentiment got an additional lift from Washington. At a signing ceremony centered on quantum computing, the president singled out IBM's chief executive for praise, an unusual public endorsement that coincided with the analyst action. The combination helped the stock open higher in premarket trading, recovering some ground after its year-to-date slide.

The timing is notable given the broader backdrop. The upgrade arrived during a turbulent stretch for technology shares, with global markets selling off amid questions about whether the heavy investment pouring into AI will pay off and concerns about the prospect of higher US interest rates. Against that mood, the bullish case on IBM leans less on the speculative end of the AI trade and more on the steadier, cash-generative software franchise that JPMorgan argues the market has overlooked, a relatively defensive profile that some investors may find appealing when richly valued growth names are under pressure.