QS Research · Michael Burry's Scion Capital analyst template · 2006
INTERNATIONAL BUSINESS MACHINES CORP (IBM)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case -17% · downside -38% · upside +20%
The market is capitalizing TTM FCF of $14.66B, but section 13's cycle-normalized FY2020-FY2025 FCF base is only about $12.10B; at the quoted 6.3% FCF yield that implies ~$192B equity value, or ~$203/share on 945.12M shares, 17% below the $245.00 close. The peer EV/EBITDA band gives ~$152/share at 13.5x (-38%) and ~$294/share at 22.7x (+20%) on TTM EBITDA of $14.66B, so the risk/reward is bearish but not enough to short under the rule. Bad news looks more cyclical/sentiment-driven than permanent — Q3 2026 revenue grew 5% and FY2026 FCF guidance was raised — but normalized cash conversion, acquisition spend and debt keep me from underwriting +30%. I would watch, not short: the base case is -17%, not -30%, and the +20% upside is capped but not zero.
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): 19.5x
- P/E (TTM): 20.7x
- Price / book: 6.52x
The 15 boxes
- ✓ 1. Long-form business notes
The latest 10-K (FY2025) says IBM creates value by helping clients use hybrid cloud and AI, sold through Software, Consulting, Infrastructure and Financing and supported by partners such as AWS, Microsoft, Oracle and SAP. The FY2020 10-K used different segment labels—Cloud & Cognitive Software, Global Business Services, Global Technology Services, Systems and Global Financing—so the report's segment presentation changed between the oldest and newest annual report. XBRL shows FY2025 revenue $67.53B, gross profit $39.30B, pre-tax income $10.33B, net income $10.59B, operating cash flow $13.19B and capex $1.09B. The provided sources do not include Q2 2026 or TTM figures.
- ✓ 2. Competitive advantage
The sources show a scaled franchise with stated strengths — brand, incumbency with large enterprises, breadth across software, consulting and infrastructure, and an explicit financing edge — but no hard evidence of pricing power: gross profit grew slightly faster than revenue (FY2020 to FY2025) while operating cash flow fell, and pre-tax income ranged from $1.16B (FY2022) to $10.33B (FY2025). Reported net income is unreliable as a read on the business: it exceeded pre-tax income in four of the six years shown, so below-the-line items, not operations, moved the bottom line. IBM competes against hundreds of named and unnamed rivals in every segment, and its own filings concede that patents may not stop competitors from duplicating its products.
- ✓ 3. 10-Q takeaways
Q3 2026 (quarter ended 2026-09-30) revenue was $17,103M versus $16,331M a year earlier, with Software $7,804M (+8.2% y/y) the only clear grower, Consulting $5,335M (+0.2%) flat and Financing $192M (-3.9%) down. Total segment profit was $4,209M at a 24.7% margin versus 23.5%, helped by lower SG&A ($4,620M vs $4,748M) but partly offset by R&D up to $2,378M from $2,082M. Pre-tax income from continuing operations rose only to $2,497M from $2,430M; the jump in net income to $2,190M ($2.30 diluted) from $1,744M ($1.84) came largely from a lower tax provision, $298M versus $686M, not from operations. Cash from operations for nine months 2026 was $11,791M versus $9,153M, but cash fell to $9,233M from $13,587M at 2025-12-31 after $11,364M of acquisitions and $4,762M of dividends, and inventory built to $1,945M from $1,220M.
- ✓ 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.
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