https://seekingalpha.com/article/4888770-ibm-ai-sting
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"International Business Machines Corporation faces as much AI-driven disruption risk as potential AI-driven growth, challenging the prior bullish narrative."
"IBM stock valuation still doesn't reflect limited AI upside and the risk of AI cannibalizing legacy businesses despite quickly falling $70 this year."
Take a look.
3 replies (most recent on top)
[Complete article quoted below from OP's post].
By: Stone Fox Capital |
Apr 06, 2026, 5:38 PM ET
Summary
- International Business Machines Corporation faces as much AI-driven disruption risk as potential AI-driven growth, challenging the prior bullish narrative.
- The company's AI-related bookings are concentrated in low-margin consulting, not driving meaningful top-line or margin expansion for IBM.
- IBM's 2026 revenue is forecast to grow just 5%, with consensus EPS growth at 7% and the stock trading at 20x forward earnings.
- IBM stock valuation still doesn't reflect limited AI upside and the risk of AI cannibalizing legacy businesses despite quickly falling $70 this year.
In no shock, International Business Machines Corporation (IBM) faces disruption by the technology that sent the stock to record highs. The main issue here is that IBM never actually saw huge benefits from AI. My investment thesis remains Bearish on the tech stock, even after the $70 dip from all-time highs in a quick move down.
https://static.seekingalpha.com/uploads/2026/4/5/saupload_IBMd152167957i.png
Disrupted By AI
IBM zoomed ahead last year on the theory that AI was driving faster growth, yet the business wasn't really deriving much in the way of AI-related growth. The company constantly announces tons of AI bookings, but a lot of the bookings are in the low-margin consulting business, and the overall business isn't growing dramatically.
The stock has plunged as the market became fearful of Claude Code from Anthropic (ANTHRO) replacing the software business. Suddenly, the market started realizing IBM faced a threat of a loss of sales, especially in the antiquated COBOL code in mainframe computers. If someone can vibe code a new software platform, one likely could bypass the services of the tech giant.
If anything, analysts have pushed back on this claim, suggesting IBM was already full speed ahead using generative AI tools via Watsonx to update COBOL code in mainframes to Java. In fact, IBM announced a partnership with Anthropic back in late 2025, long before the Claude Code threat popped up.
What the information has made the stock market realize is that IBM faces an AI threat for disruption as much as the company will benefit from AI. The tech company has long promoted the AI benefits from large bookings and cost savings, but the stock market wasn't accurately pricing in risk.
On the Q4 '25 earnings call, CEO Arvind Krishna highlighted the AI booking as follows:
"Our cumulative GenAI book of business now stands at over $12.5 billion, of which Software is more than $2 billion and Consulting is more than $10.5 billion, with both seeing the largest quarterly increase to date."
The amount increased from $9.5 billion in the prior quarter, up ~$3.0 billion QoQ. The problem is that overall Consulting backlog only grew 2% YoY to $32 billion despite adding all of the AI bookings for Consulting.
In essence, the new contracts are for AI, but these contracts aren't for additional money on top of existing contracts. The whole AI bookings bo-m is just customers signing new contracts labeled as AI; whether replacing existing contracts or signing extensions, it's not growing the business.
Don't forget, the Consulting business has low margins, unlike Software. IBM only generates 12% profit margins for Consulting versus 33% for Software.
Limited AI Growth
IBM only forecasts 2026 revenues to grow 5%, with a target for $1 billion in YoY growth in free cash flow. The Software segment is targeted to grow around 10%, but the segment is less than 50% of the total business and only attracting a small percentage of the AI bookings.
After falling back to below $250, IBM trades at a much more reasonable 20x forward EPS targets. The consensus analyst estimates forecast the 2026 EPS of $12.38 with only 7% growth, placing the stock trading at 3x the forecasted growth rate.
https://static.seekingalpha.com/uploads/2026/4/5/saupload_8ad015f1189d9d967c6559646f4689ce.png
The issue facing investors is that not only is IBM stock still expensive based on limited growth, but also the company hasn't shown an ability to report accelerating growth due to AI. The real risk exists from AI actually eating software and reducing the already limited growth rates of the tech company.
IBM is set to report earnings after the close on April 22. The company is expected to start 2026 off with stronger Q1 '26 results than the forecast for the year, in part due to the non-organic revenues from the HashiCorp deal having not closed until the end of last February.
In reality, the current analyst forecasts suggest IBM struggles to produce 5% growth the rest of the year. The company is only on a path for 5% annual growth for the rest of the decade.
https://static.seekingalpha.com/uploads/2026/4/5/234751-17754363179430723_origin.png
Takeaway
The key investor takeaway is that IBM could easily bounce back after the big selloff this year. The company doesn't likely face any existential threat from AI and Clause Code, but the risk does exist. Ultimately, though, IBM does face the reality that AI isn't actually driving material growth, so AI offers as much risk as reward, and the current stock price still doesn't reflect that scenario.
sigh, 'science' or 'engineering' in the US now
is mostly propaganda or fraud
this won't end well
IBM has ZERO AI strategy. IBM has a bunch of incompetent id--ts spewing smoke off their as--s. The Indian id--t at the top is leading the bullsh-t talk.