IBM software growth seen reaccelerating ahead of earnings: Jefferies
Published: 13:21 22 Jan 2026 EST
International Business Machines Corp (NYSE:IBM) is positioned for a potential reacceleration in software growth and upward estimate revisions in 2026, according to Jefferies analysts.
In a note ahead of IBM’s earnings report, due on January 28, the firm reiterated a ‘Buy’ rating on the stock. “We are bullish on IBM's ability to deliver upward estimate revisions and accelerating software growth in calendar year 2026,” the analysts wrote.
Jefferies pointed to Red Hat as a primary driver of the outlook, noting that bookings growth accelerated to roughly 20% and that key subscription products such as OpenShift and Ansible are showing accelerating demand. The analysts highlighted OpenShift’s annual recurring revenue of about $1.8 billion, along with about 40% bookings growth, supported by $400 million in virtualization-related bookings and an additional $700 million pipeline. They wrote that these indicators, along with broader Red Hat momentum, could help drive stronger software revenue.
The note also cited momentum in automation and data as supporting factors, noting that HCP delivered its highest bookings quarter in history in the third quarter, supported by IBM’s global distribution channels, and is expected to approach 20% growth this year.
Jefferies added that the Data and AI portfolio, initially expected to grow in the mid-to-high single digits, could benefit from the CFLT transaction through acquired revenue and a higher growth profile.
A rebound in mainframe software spending could further support software revenue, the firm added. The analysts noted that transaction processing software underperformed for much of 2025 as mainframe clients prioritized hardware spend early in the cycle.
Given the strength in shipped MIPS, which they wrote were more than 100 percent higher versus the z16 cycle, Jefferies believes that transaction processing revenue should benefit as shipped MIPS turn into installed MIPS.
On IBM’s Q4 results, Jefferies noted that sentiment has improved as IBM’s software growth rose from mid-single digits to high-single digits, but execution has been inconsistent and the company has slightly missed Street estimates in each of the last four quarters.
They noted that Street estimates are modeling 10.2% year-over-year software growth in the fourth quarter, alongside 10% infrastructure growth and 6% consulting growth, with total revenue growth expected at 9.5% and a free cash flow margin of 36%.
Jefferies also discussed valuation, noting that IBM trades at 26 times CY27 GAAP EPS, compared with 27 times for Oracle and 23 times for Microsoft. They have a $360 price target on IBM, which traded hands at about $297 on Thursday afternoon.
The analysts believe that the multiple could expand if software execution becomes more consistent and the software business mix rises, with software expected to represent nearly half of revenue by 2027.
