AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 6/6 · 28/10/2026
Moat50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 2/4 · IBM Z incumbency with ELAs and a large recurring software base provide a switching-cost structure, evidenced by ELAs’ long-term commitments and stated renewal strength in Transaction Processing.
durability · 2/4 · ARR growth and sizable RPO support persistence, but government termination provisions, short-term term-license cancellability, and observed transactional softness temper durability.
customer dependency · 2/4 · Disclosures emphasize mission-critical software value and renewal strength, indicating reliance, but replacement costs and explicit churn data are not provided.
erosion resilience · 2/4 · The moat withstood overall growth, yet transactional revenue declined and late-quarter deal delays occurred; cloud providers compete on delivery and routes to market.
Pricing power63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 3/4 · Price increases contributed to growth in Transaction Processing, directly evidencing realized pricing in that portfolio.
retention · 3/4 · A recurring base constituting approximately 80% of Software revenue and growing ARR provide strong indirect evidence of continuing demand and renewals.
margin resilience · 2/4 · Margins expanded in 2025 but declined in 2Q26; mixed results suggest margins are influenced by mix and execution, not solely by pricing power.
contractual freedom · 2/4 · ELAs indicate long-term strategic commitments, but some government agreements permit termination without cause and many term licenses include short-term termination rights.
Predictability100
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 2.51
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 1.90
Financial strength28
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 34.39
- netDebtEbitGrade
- 11.77
- interestCoverageGrade
- 48.52
- currentRatioGrade
- 16.45
- Debt / FCF (x)
- 5.59
- Net debt / operating income (x)
- 4.41
- Current ratio (x)
- 0.96
Capital allocation83
Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year pre-tax operating return (%)
- 13.35
- 3-year average dilution (%)
- 1.08
- 3-year average SBC / revenue (%)
- 2.15
- cashConversionGrade
- 100.00
Management63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Management maintained dividends and delivered growth, while deploying substantial M&A and modestly increasing debt; outcomes appear balanced but not definitively disciplined absent return metrics.
incentive alignment · 3/4 · Disclosed practices include long-term equity emphasis, clawbacks, ownership requirements, and prohibitions on hedging/pledging, supporting alignment.
execution · 2/4 · IBM reported revenue growth and ARR expansion with Q3 2026 acceleration, but also cited 2Q 2026 deal slippage and transactional softness, yielding a mixed execution record.
governance · 3/4 · Independent lead-director responsibilities and described oversight processes indicate functioning governance and board engagement.
Evidence
ELAs are highly valuable to IBM because they establish long-term, strategic client commitments that expand adoption across our software products, creating a multiplier effect.
Q2 2026 MD&A - Software ELAs · Filed 23/07/2026
The remaining 20 percent of Software revenue is transactional in nature, and is predominantly related to the incumbency with IBM Z and the associated enterprise license agreements (ELAs) with Transaction Processing and other software products in Data and Automation.
Q2 2026 MD&A - Software composition · Filed 23/07/2026
Our recurring revenue base, which is approximately 80 percent of Software revenue, delivered healthy growth, reflecting demand for our offerings.
Q2 2026 MD&A - Recurring revenue · Filed 23/07/2026
Transaction Processing revenue of $8,408 million increased 9.0 percent as reported (9.9 percent adjusted for currency), with performance in 2024 reflecting the combination of clients' growing capacity demands, solid renewal rates, and increased contribution from our generative AI products, including watsonx code assistant for Z.
2025 Annual - Transaction Processing · Filed 24/02/2026
Across Software, our annual recurring revenue (ARR) was solid at $24.6 billion, which increased approximately $2 billion as reported year to year.
Q2 2026 MD&A - ARR · Filed 23/07/2026
This, together with price increases, contributed to growth in both recurring and transactional revenue in Transaction Processing.
2023 Annual - Transaction Processing pricing · Filed 26/02/2024
Also, some agreements may contain provisions allowing the customer to terminate without cause and providing for higher liability limits for certain losses.
2024 10-K - Risk factors (Government contracts) · Filed 25/02/2025
Proprietary term licenses often have a one-month contract term due to client termination rights, in which case, revenue would be recognized in that month for both the license and PCS.
2023 Annual - Revenue recognition (term licenses) · Filed 26/02/2024
Further, cloud service providers are leveraging innovation in technology and service delivery to compete with traditional providers and to offer additional routes to market for server and storage systems.
2024 10-K - Business Competition · Filed 25/02/2025
At September 30, 2026, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was approximately $69 billion.
Q3 2026 10-Q - RPO disclosure · Filed 22/10/2026
Financing:
Financing provides client and commercial financing, facilitating IBM clients’ acquisition of hardware, software and services.
2024 10-K - Financing · Filed 25/02/2025
Damage to IBM’s Reputation Could Impact the Company’s Business: IBM has one of the strongest brand names in the world, and its brand and overall reputation could be negatively impacted by many factors, including if the company does not continue to be recognized for its industry leading technology and solutions and as a hybrid cloud and AI leader.
2024 10-K - Risk factors (Reputation/brand) · Filed 25/02/2025
Our strategic partners include: Adobe, Amazon Web Services (AWS), Microsoft, Oracle, Palo Alto Networks, Salesforce, Samsung Electronics and SAP, among others.
2024 10-K - Strategic partners list · Filed 25/02/2025
Companies with which we have strategic partnerships in some areas may be competitors in other areas.
2024 10-K - Partner-competitor overlap · Filed 25/02/2025
Transactional revenue declined in the period given the shift in customer buying patterns late in the quarter.
Q2 2026 MD&A - Transactional revenue decline · Filed 23/07/2026
In the final weeks of June, we saw a shift in client spending priorities that resulted in numerous large deals failing to close within the expected timelines, driving the majority of the shortfall.
Q2 2026 MD&A - Late-quarter deal delays · Filed 23/07/2026
Gross margin of 58.2 percent increased 1.5 points year to year with gross margin expansion driven by portfolio mix and productivity actions.
2025 Annual - Gross margin expansion · Filed 24/02/2026
Mitigate risk taking by emphasizing long-term equity incentives, placing caps on potential payments, and maintaining robust clawback provisions
Require significant share ownership by the Chairman, President and CEO, Vice Chairman and Senior Vice Presidents
Utilize noncompetition and nonsolicitation agreements for senior executives
Remove impact of share repurchase on executive incentives
What we don’t do
No individual severance or change-in-control agreements for executive officers
No excise tax gross-ups for executive officers
No dividend equivalents on unearned RSUs/PSUs
No hedging/pledging of IBM stock
No stock option repricing, exchanges or stock options granted below market value
No guaranteed incentive payouts for executive officers
No accelerated vesting of equity awards for executive officers
No above-market returns on deferred compensation plans
8
IBM
IBM Board of directors
Overview
IBM’s Board of Directors is responsible for supervision of the overall affairs of IBM.
2026 Proxy - Pay alignment practices · Filed 10/03/2026
•Independent Board leadership. An essential component of the Board leadership structure is independent leadership.
2026 Proxy - Independent Lead Director · Filed 10/03/2026
Third-Quarter Highlights
•Revenue
–Revenue of $17.1 billion, up 5 percent, up 6 percent at constant currency
Q3 2026 results - revenue growth · Filed 21/10/2026
The company invested $10.5 billion in acquisitions this year.
Q2 2026 release - acquisitions spend · Filed 22/07/2026
Debt, including IBM Financing debt of $13.0 billion, totaled $62.0 billion, up $0.7 billion year to date.
Q2 2026 release - debt level · Filed 22/07/2026
•Free cash flow: The company now expects full-year free cash flow to increase by more than $1 billion year-over-year
Dividend Declaration
The IBM board of directors approved a regular quarterly cash dividend of $1.69 per common share, to stockholders of record on November 10, 2026.
Q3 2026 - dividend declaration · Filed 21/10/2026
Our 2025 performance reflects our deep focus on the business fundamentals with continued revenue growth, gross profit margin expansion and strong cash generation, and a balance sheet with financial flexibility to support our business.
2025 Annual - performance commentary · Filed 24/02/2026
Clients continue to value this portfolio of mission-critical software in support of growing workloads on our hardware platforms, such as zSystems.
2023 Annual - Mission-critical client value · Filed 26/02/2024
Further, inherent in the company’s financing business are risks related to the concentration of credit, client creditworthiness, interest rate and currency fluctuations on the associated debt and liabilities and the determination of residual values.
2024 10-K - Financing risks · Filed 25/02/2025
Profit:
-Gross Profit Margin: GAAP: 57.7 percent, down 100 basis points; Operating (Non-GAAP): 59.4 percent, down 70 basis points
Q2 2026 letter - Gross margin down YoY · Filed 14/07/2026
