Kyndryl’s AI Push Gains Momentum — But Debt Looms

Forward-Looking Analysis

Analysts project Kyndryl (KD) to report Q3 2026 earnings per share (EPS) of $0.56, with consensus expectations driven by recent AI-focused initiatives and strategic client expansions. Wall Street analysts maintain a Moderate Buy rating, with 8 analysts issuing 5 Buys, 3 Holds, and 0 Sells. The average 12-month price target of $38.00 implies a 65.22% upside from the current $23.00 share price. Recent upgrades from JPMorgan and Scotiabank highlight confidence in Kyndryl’s AI-driven SAP transformation center and extended Hertz cloud migration deal, which position the company to capture high-margin, long-term IT modernization contracts. However, high debt (debt-to-equity ratio of 3.28) and execution risks on large-scale projects remain key concerns.

Historical Performance Review

In Q2 2026, Kyndryl reported revenue of $3.72 billion, net income of $68.00 million, EPS of $0.29, and gross profit of $801.00 million. While revenue declined 1.4% year-over-year, the company exceeded EPS estimates by $0.07, reflecting cost discipline and margin stabilization. The quarter marked a turning point as Kyndryl reiterated its path to profitability, supported by improved operating leverage in its managed services portfolio.

Additional News

Kyndryl launched an AI-Driven SAP Transformations Center of Excellence, partnering with Nova Intelligence to modernize enterprise systems. The company also extended its Hertz contract to migrate the car rental giant’s infrastructure to cloud platforms using AI frameworks. These moves align with Kyndryl’s strategy to leverage AI in mission-critical IT services, a growing demand in the $47 billion managed security services market. Institutional investors, including Allianz Asset Management, increased stakes by 56.1% in Q3, signaling confidence in the turnaround. However, recent insider sales and elevated short interest (2.4% of float) highlight lingering skepticism about execution risks.

Summary & Outlook

Kyndryl’s Q3 earnings will test its AI-driven turnaround narrative. While Q2 results showed improved margins and strategic momentum, the company must demonstrate scalable growth in high-margin AI/ML projects to justify its 13.06 P/E ratio. Analysts’ $38.00 price target hinges on successful execution of the SAP and Hertz deals, which could drive recurring revenue. Risks include debt servicing pressures and project delays, but the improving gross margin (21.5% in Q2) and strong ROE (25.76% in Q2) suggest operational discipline. A beat on EPS and positive guidance would likely trigger a re-rating, but a miss could reignite bearish sentiment. Overall, Kyndryl remains bullish on its AI pivot, provided it maintains cost control and secures follow-on contracts.