RBC analysts initiated research coverage on IBM (NYSE:IBM) with an Outperform rating and a $188 per share price target, which is a new Street high target.
RBC has an optimistic view regarding IBM's competitive positioning and the distinctive role it occupies within the tech ecosystem. IBM's value proposition is most prominently demonstrated by its ability to facilitate efficient digital transformations through its consulting and software offerings.
According to RBC analysts, IBM's software business is often misinterpreted and undervalued, particularly in the context of its contributions to hybrid environments, artificial intelligence AI, and expenditure optimization.
“Investors still seem to view IBM largely from its hardware and services lens. We feel this view is currently embedded in valuation where the company trades roughly in-line with consulting peers but a significant discount to software peers. Software revenue, which is growing in the high single-digits at a +$20B scale, should continue to grow over time as a percentage of revenue relative to infrastructure, improving profitable growth,” they wrote in a note.
The analysts added that IBM has created “a unique role in hybrid cloud enablement.”
“We feel that IBM is going to use a similar playbook for GenAI, becoming a critical player in the enterprise for governance and model management as it benefits from its independence and being able to share in the success of its partners regardless of the winners,” they concluded.
The analysts also noted that IBM trades at a discount to mega cap peers as well as software peers.