Profit margins continue to improve, HSBC raises IBM (IBM.US) rating to "hold"

HSBC Bank, citing improvements in profit margins and valuations, has raised its rating on tech giant IBM (IBM.US) from "reduce" to "hold". Analyst Stephen Bersey, in a report to clients, cited IBM's recent performance, stating, "Non-GAAP operating profit margin was 15.7%, an increase of 195 basis points year-on-year, roughly 85 basis points higher than expected," "Non-GAAP operating profit reached $2.505 billion, about 7% higher than HSBC's and consensus expectations. Since 2023, IBM has achieved productivity savings of $4.5 billion and is expected to save another $1 billion by 2026." HSBC stated, "the company has maintained its 2026 performance guidance. It continues to expect revenue growth exceeding 5% at fixed exchange rates in 2026, but emphasizes that software business growth may exceed 10% (previously 10%), benefiting from the earlier-than-expected completion of the Confluent acquisition. Although the acquisition of Confluent may dilute profit margins, the non-GAAP profit before tax (PBT) margin may still increase by about 1 percentage point year-on-year." Bersey also pointed out that IBM's quantum computing business appears to provide a first-mover advantage. "Management emphasizes that the company is still on track to deliver the first large-scale fault-tolerant quantum computer by 2029, and IBM's partners will leverage IBM's hardware this year to achieve the first wave of 'quantum advantage' use cases."