IBM stock jumps after JPMorgan upgrade on AI and software growth

Shares of IBM climbed nearly 5% in premarket trading on Tuesday after JPMorgan upgraded the technology company, citing increasing confidence in its software business and potential benefits from growing artificial intelligence adoption.

JPMorgan analyst Brian Essex upgraded IBM to Overweight from Neutral and raised his price target to $291 from $270.

The analyst said expectations for software acceleration in the second half of 2026 have strengthened the firm's outlook on the stock.

The upgrade comes as IBM continues a multiyear transformation from a hardware and services provider into a software-led platform focused on hybrid cloud and artificial intelligence technologies.

Software transition and AI adoption support outlook

JPMorgan highlighted several growth drivers, including momentum from Red Hat and OpenShift migration activities.

The firm pointed to OpenShift's role in supporting the adoption of IBM's AI-driven container platform among enterprises.

The analysts also noted accelerating automation demand following IBM's acquisition of HashiCorp, which management said is receiving increasing support from senior corporate executives.

IBM's software segment has become the primary earnings engine for the company.

According to JPMorgan, software now accounts for roughly 45% of IBM's revenue but generates approximately two-thirds of consolidated profit.

"We view the continued shift toward software as positive considering the higher-margin, ratable nature of software with better cash conversion and a higher-quality earnings stream that supports a higher multiple than the hardware and services businesses," the analysts said.

JPMorgan also said that if IBM becomes a significant beneficiary of rising AI demand, the stock could see further valuation expansion.

Separately, Morgan Stanley raised its price target on IBM to $267 from $225 while maintaining an Equal Weight rating.

The firm noted that recent earnings reports from Dell and Hewlett Packard Enterprise demonstrated that enterprise server demand has remained stronger than expected despite higher prices driven by compute shortages, hardware refresh cycles and growing AI infrastructure requirements.

Morgan Stanley added that Wall Street expectations for 2026 and 2027 "look too low" and increased its earnings-per-share estimates by 5% to 6% for companies with exposure to computing demand.

Quantum computing initiatives provide additional tailwind

IBM may also benefit from fresh support for quantum computing from the US government.

Chief Executive Officer Arvind Krishna attended the White House on Monday as President Donald Trump signed two executive orders designed to accelerate domestic quantum computing development and strengthen cybersecurity protections against quantum-powered threats.

The first executive order directs the development of "the first-ever quantum computer powerful enough for scientific research," with the goal of locating the system in a national laboratory by 2028.

The second order accelerates the federal government's transition to post-quantum cryptography by 2031.

"When President Trump published a letter to me in early 2025, he prioritized quantum as a key industry for America to lead the world alongside AI and nuclear energy," said Michael Kratsios, the president's top advisor on science and technology policy.

Industry participants are working toward achieving fault tolerance by the end of the decade, a milestone that would allow quantum computers to operate reliably even when individual components experience failures or disruptions.

The latest policy initiatives add another potential growth catalyst for IBM as it expands its presence in artificial intelligence, hybrid cloud software, and next-generation computing technologies.