Why Goldman Sachs Is Bullish On IBM

International Business Machines Corp IBM shares are trading higher after Goldman Sachs analyst James Schneider initiated coverage with a Buy rating and announced a price target of $200.

The analyst noted the industry is amid a cyclical correction driven by IT spending constraints, a near-term shift in spending priorities toward AI-focused CapEx, and away from Software and Services.

At the same time, Schneider noted investors are grappling with the secular question of whether Generative AI represents a significant threat to the IT Services sector.  

Generative AI will likely be a net benefit for the sector, but it may take some time to realize these benefits because of the technical debt corporations must overcome before realizing the benefits of AI, the analyst said.  

The market is conflating these cyclical and secular risks, which presents a significant opportunity in select names at this point in the cycle.  

Schneider is most bullish on names that he noted are positioned to be structural market share gainers in the shift to Generative AI.

Schneider will be more broadly constructive on the sector pending more signs of positive demand momentum – which he did not expect to occur before early 2025.

Is IBM A Good Stock To Buy?

An investor can make a few decisions when deciding whether a stock is a good buy. In addition to valuation metrics and price action which you can find on Benzinga's quote pages – like IBM‘s page for example – there are factors like whether or not a company pays a dividend or buys a large portion of its stock each quarter.

These are known as capital allocation programs. IBM does pay a dividend, which yields 4.24% per year as of the closing price on Jun. 24, 2024. Feel free to search Benzinga's dividend calendar for the next company that is due to pay a dividend and determine what kind of yield you can earn for holding a share of the company.

For example, if you're looking to earn an annualized return of 19.77%, you'll need to buy a share of Dividend Gwth Split by the Jun. 28, 2024. Once done, you can expect to receive a nominal payout of $0.1 on Jul. 15, 2024.

Buyback programs are obviously different and highly variable. A company can approve a buyback program and purchase shares as it sees fit over the course of time in which the buyback was authorized. Looking through the latest news on IBM will often yield whether or not the company has approved a buyback program recently. Buyback programs usually serve as a support for share prices, serving as a backstop for demand.

Price Action: IBM shares traded higher by 1.73% to $175.45 at the last check on Monday. 

Photo via Shutterstock