QS Research · Michael Burry's Scion Capital analyst template · 2006
INTERNATIONAL BUSINESS MACHINES CORP (IBM)
As of 2026-11-08 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case none · downside -29% · upside +44%
At $245.00 IBM is priced at 16.1x TTM EV/EBITDA and a 6.3% TTM FCF yield, which is the base case, not a bargain: the same TTM EBITDA $17.73B on the peer-median 12.3x gives $173 (-29%), and on SAP's 21.9x gives $353 (+44%). The business is not broken—Q3 2026 revenue grew 5%, Software 8%, the FCF outlook was raised, and RPO is about $69B—but Consulting is flat, IBM Z is shrinking, and an $11.4B acquisition year has left $54.58B net debt and $74.9B goodwill. I use TTM EBITDA as the single base rather than a cycle average; for context, six-year average FCF is $12.10B against $14.66B TTM, so cash flow is above its own cycle. The stock is a watch: the long rule needs a +30% base and the short rule needs a -30% base, and at today's own multiple the base is 0%.
Key numbers
- Share price: $245.00
- Market cap: $231.55B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $69.87B
- EV / EBITDA (TTM): 16.1x
- P/E (TTM): 20.7x
- Price / book: 6.52x
The 15 boxes
- ✓ 1. Long-form business notes
IBM in the FY2025 10-K describes itself as a hybrid cloud and AI company selling through four segments — Software, Consulting, Infrastructure and Financing — against five differently named segments (Cloud & Cognitive Software, Global Business Services, Global Technology Services, Systems, Global Financing) in the FY2020 10-K; GTS, the outsourcing-heavy segment, no longer appears. Over the six fiscal years shown (FY2020–FY2025) revenue rose from $55.18B to $67.53B and net income to common from $5.59B to $10.59B, while operating cash flow fell from $18.20B to $13.19B and capex shrank from $2.62B to $1.09B. The data table gives no segment revenue, gross margin by segment, or split of one-off items, so unit economics cannot be built from these sources.
- ✓ 2. Competitive advantage
IBM's advantage is breadth and incumbency, not a single product moat: the FY2025 10-K claims it is "the leader or among the leaders" in every segment but names hundreds of competitors, from Microsoft, Oracle, SAP and Amazon in Software to Accenture in Consulting to Dell, HPE and ODMs in Infrastructure. The financial record supports scale pricing power more than pricing power alone: gross profit climbed from $30.86B (FY2020) to $39.30B (FY2025) on revenue of $55.18B to $67.53B, while operating cash flow fell from $18.20B to $13.19B over the same six years. Pre-tax income is volatile — $1.16B in FY2022 against $10.33B in FY2025 — and net income to common exceeded pre-tax income in three of the six years, so the cycle should be read off pre-tax earnings, not net income. IBM's own risk factors concede that its patents may not stop competitors from building similar products.
- ✓ 3. 10-Q takeaways
Q3 2026 revenue was $17.1B, up 5% (6% at constant currency), led by Software +8% and Infrastructure +4% while Consulting was flat; GAAP gross margin slipped to 56.8% (down 50 bps) and GAAP pre-tax income rose only 3% to $2.5B, so the 26% jump in GAAP net income to $2,190M rests mainly on the tax rate falling to 11.9% from 28.2%. Nine months to Sep 2026 delivered $11.8B of operating cash flow and $7.8B of free cash flow, with cash plus marketable securities down $3.4B to $11.1B after $11.4B of acquisitions, and management still guides FY2026 constant-currency revenue growth of 4-5% with free cash flow up more than $1B. Inventory built to $1,945M from $1,220M at year-end 2025 and goodwill rose to $74,916M on acquisitions led by Confluent.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
Sign in with a QuantSignals Premium or Gold plan to read every box: each point linked to the SEC filing it came from, the bull and bear case, and the comparables. QS Research powers the signals behind FST, our autonomous trading agent.