IBM's Q1 Report Expected to Meet Expectations, Revenue Growth Forecasted at 5%

IBM is set to release its financial report after the market closes on Wednesday. morgan stanley has issued a research report assigning ibm a "market in line" rating with a target price of $237. The firm anticipates that IBM's first-quarter financial report and second-quarter guidance will meet expectations. Additionally, Morgan Stanley forecasts that IBM's revenue for the fiscal year 2025 will grow at a rate exceeding 5% on a fixed currency basis, with free cash flow guidance remaining unchanged at $13.5 billion.

Morgan Stanley has slightly lowered its expectations for IBM's consulting and infrastructure businesses. However, the firm believes that IBM can maintain its short-term safe-haven asset status, driven by growth in its software business, despite the high valuation. This quarter presents a mix of positive and negative factors, but Morgan Stanley expects that the first-quarter performance and second-quarter guidance will align with market expectations, potentially even exceeding them.

Specifically, Morgan Stanley anticipates that the organic outlook for the software business will slightly improve, with the hybrid cloud platform completing ahead of schedule. The acquisitions of DataStax and Hakkoda, along with a slight easing of currency headwinds, are expected to offset the firm's moderate downward adjustments to its consulting and infrastructure business forecasts. These adjustments account for budget cuts related to DOGE and reflect the impact of a more sluggish and volatile macroeconomic environment on some of IBM's cyclical businesses.

Despite the current stock price fully reflecting these expectations—with IBM's stock trading at a price-to-earnings ratio of 20.5 times, a historical high, and a PEG ratio significantly higher than that of large software companies and peers in the AI sector—Morgan Stanley believes that in the current market environment, even with headwinds in the consulting and infrastructure businesses, delivering "in line with expectations" quarterly performance at the current valuation level is sufficiently attractive to investors.

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