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. 5/6 · 18/10/2026
Moat50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 2/4 · IBM Z incumbency and associated enterprise license commitments support a limited switching-cost mechanism, corroborated by recurring software demand. Technical migration barriers and superiority over alternatives remain unquantified.
durability · 2/4 · Long-term license commitments and multiyear contracted work provide persistence, but company-wide RPO cannot establish software-specific longevity. Terminations, scope changes and evolving competition limit confidence beyond existing commitments.
customer dependency · 2/4 · Incumbent IBM Z software relationships, broader adoption through ELAs and recurring demand indicate customer reliance indirectly. The passages do not establish operational indispensability or actual replacement costs.
erosion resilience · 2/4 · Recurring software demand remains healthy, but delayed transactions and declining Transaction Processing revenue show exposure to customer spending shifts. These results do not establish sustained competitive displacement; cloud competition and IP limitations remain prospective risks.
Pricing power—
Insufficient evidence for every rubric criterion; no category score is inferred.
realized pricing · — · No realized IBM price, discount or price-versus-volume outcomes are disclosed. Purchases ahead of expected infrastructure price increases cannot establish IBM's actual pricing realization.
retention · 3/4 · A growing recurring base comprising approximately 80 percent of Software revenue, long-term ELAs and substantive contractual commitments provide strong indirect evidence of continuing demand. This assesses repeat demand and commitments, not a measured renewal rate; ARR growth includes acquisitions.
margin resilience · 2/4 · First-half gross margins were essentially flat and adjusted pre-tax margin improved, while second-quarter gross margin and first-half GAAP pre-tax margin declined. Productivity and mix materially influence these results, preventing attribution to pricing power.
contractual freedom · 2/4 · Substantive termination penalties and long-term ELAs support enforceable commitments, but some government contracts allow termination without cause. The disclosed position is mixed and does not establish unilateral repricing freedom.
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 · Reported operating cash generation, dividend distributions and zero second-quarter repurchases coexist with substantial Confluent spending, increased debt and rising stock-based compensation. These support a mixed assessment; acquisition returns and long-term dilution outcomes are not demonstrated.
incentive alignment · 3/4 · Existing performance-linked equity, ownership requirements, clawbacks, hedging restrictions and the relative shareholder-return modifier introduced in 2025 demonstrate substantive alignment mechanisms. Target-adjustment discretion and absent ownership balances limit the assessment. Proposed 2026 plan provisions are excluded.
execution · 2/4 · Three consecutive years of revenue growth, operating cash generation, recurring software growth and improved first-half adjusted profitability support execution through indirect operating evidence. Delayed large deals, Transaction Processing weakness and acquisition contributions make the record mixed.
governance · 3/4 · Disclosed committee independence, independent executive sessions, active lead-director duties and an implemented response to board feedback demonstrate functioning oversight processes. Issuer disclosure does not establish exceptional oversight effectiveness or eliminate compensation discretion.
Evidence
Our recurring revenue base, which is approximately 80 percent of Software revenue, delivered healthy growth, reflecting demand for our offerings.
MD&A / Software / recurring revenue base · 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.
MD&A / Software / IBM Z incumbency and enterprise license agreements · Filed 23/07/2026
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.
MD&A / Software / management explanation of enterprise license commitments · Filed 23/07/2026
It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed, such as certain as-a-service, governmental, term software license and services offerings.
Notes / remaining performance obligations / committed-contract scope · Filed 23/07/2026
The customer is not considered committed when they are able to terminate for convenience without payment of a substantive penalty.
Notes / remaining performance obligations / substantive termination penalties · Filed 23/07/2026
At June 30, 2026, the aggregate amount of the transaction price allocated to RPO related to customer contracts that are unsatisfied or partially unsatisfied was approximately $68 billion.
Notes / remaining performance obligations / June 30, 2026 balance · Filed 23/07/2026
Approximately 69 percent of the amount is expected to be recognized as revenue in the subsequent two years, approximately 28 percent in the subsequent three to five years and the balance thereafter.
Notes / remaining performance obligations / expected recognition periods · 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.
MD&A / second-quarter review / delayed large deals · Filed 23/07/2026
Transaction Processing revenue decreased 8.1 percent as reported (8.6 percent adjusted for currency), reflecting the shortfall in our IBM Z performance.
MD&A / Software / Transaction Processing revenue decline · Filed 23/07/2026
This increase reflects the acquisition of Confluent and growth across other areas of our recurring revenue base.
MD&A / Software / acquisition contribution to ARR growth · Filed 23/07/2026
ARR should be viewed independently of software revenue as this performance metric and its inputs may not represent revenue that will be recognized in future periods.
MD&A / Software / ARR limitations · Filed 23/07/2026
RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.
Notes / remaining performance obligations / estimate adjustments · Filed 23/07/2026
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.
Business / Infrastructure competition / cloud service providers · Filed 24/02/2026
Gross margin of 57.7 percent decreased 1.0 point year to year driven by our revenue shortfall and mix, partially offset by productivity actions.
MD&A / second-quarter consolidated gross margin · Filed 23/07/2026
Gross margin of 57.0 percent and operating (non-GAAP) gross margin of 58.6 percent were essentially flat compared to the prior-year period and were impacted by the second quarter 2026 revenue shortfall and mix dynamics.
MD&A / first-half consolidated gross margins · Filed 23/07/2026
Operating (non-GAAP) pre-tax income from continuing operations of $5.4 billion increased 9.8 percent compared to the prior-year period and the operating (non-GAAP) pre-tax margin from continuing operations increased 0.7 points to 16.4 percent.
MD&A / first-half operating non-GAAP pre-tax results · Filed 23/07/2026
Also, some agreements may contain provisions allowing the customer to terminate without cause and providing for higher liability limits for certain losses.
Risk factors / government contracts / termination rights · Filed 24/02/2026
IBM delivered $67.5 billion in revenue and $13.2 billion cash from operations.
Proxy / 2025 operating results and cash from operations · Filed 10/03/2026
Revenue increased for the third consecutive year, growing 6% at constant currency(1).
Proxy / consecutive annual revenue growth · Filed 10/03/2026
The Company also returned more than $6 billion to stockholders through dividends, and ended the year with a solid investment grade balance sheet that continues to provide financial flexibility to support our strategic priorities and long-term value creation.
Proxy / 2025 dividends and balance-sheet description · Filed 10/03/2026
($ in millions) Total Consideration (1) Cash paid for outstanding Confluent common stock $ 11,268 Cash paid for Confluent equity awards 269 Cash consideration $ 11,537 Fair value of stock-based compensation awards attributable to pre-acquisition services 65 Total consideration $ 11,602 (1)As part of the assets acquired, the company received $1,165 million of cash and cash equivalents and $917 million of short-term marketable securities from Confluent at the acquisition date.
Acquisition note / Confluent consideration paid and acquired liquidity · Filed 23/07/2026
Cash and cash equivalents, restricted cash and marketable securities at March 31, 2026 of $11.8 billion decreased $2.6 billion from December 31, 2025 and debt of $66.4 billion at March 31, 2026 increased $5.1 billion.
MD&A / March 31, 2026 liquidity and debt changes · Filed 23/04/2026
Three Months Ended June 30, Six Months Ended June 30, ($ in millions) 2026 2025 2026 2025 Cost $ 73 $ 67 $ 149 $ 132 SG&A expense 228 244 497 461 R&D expense 198 130 358 249 Pre-tax stock-based compensation cost 498 441 1,004 842 Income tax benefits (146) (156) (353) (350) Net stock-based compensation cost $ 352 $ 285 $ 651 $ 492 Pre-tax stock-based compensation cost for the three months ended June 30, 2026 increased $58 million compared to the corresponding period in the prior year primarily due to an increase in restricted stock units ($79 million) due to the issuance and assumption of stock-based compensation awards in connection with recent acquisitions, offset by a decrease in performance share units ($23 million) due to adjustments related to attainment of targets.
Stock-based compensation note / recognized costs and performance-target adjustments · Filed 23/07/2026
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased Under The Program (1) April 1, 2026 - April 30, 2026 — $ — — $ 2,007,611,768 May 1, 2026 - May 31, 2026 — $ — — $ 2,007,611,768 June 1, 2026 - June 30, 2026 — $ — — $ 2,007,611,768 Total — $ — — (1)On October 30, 2018, the Board of Directors authorized $4.0 billion in funds for use in the company’s common stock repurchase program.
Issuer repurchases / second-quarter 2026 purchases · Filed 23/07/2026
What we do Tie a significant portion of pay to Company performance 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 40 IBM 2025 Compensation discussion and analysis Personal stake in IBM’s future through stock ownership requirements Investors want the leaders of their companies to act like owners.
Proxy / existing compensation safeguards and ownership requirements · Filed 10/03/2026
We agree, and after careful consideration by the Committee, we introduced a relative Total Shareholder Return (rTSR) modifier to our long-term incentive plan in 2025.
Proxy / relative total shareholder return modifier introduced in 2025 · Filed 10/03/2026
The financial targets may be adjusted up or down for extraordinary events if recommended by the Chairman, President and CEO and approved by the Compensation Committee; for example, adjustments are usually made for large acquisitions and divestitures.
Proxy / compensation committee discretion over financial targets · Filed 10/03/2026
Members of the Audit Committee, Directors and Corporate Governance Committee, and the Executive Compensation and Management Resources Committee are non-management directors who, in the opinion of the Board, satisfy the independence criteria established by the Board, and the standards of the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE).
Proxy / committee independence · Filed 10/03/2026
presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, which are held at every Board meeting; In addition to these core responsibilities, the Lead Director engages in other regular activities, including: one-on-one debriefs with the Chairman after each meeting; spends time with senior management outside of Board meetings to ensure a deep understanding of the business and strategy of, and risks to, the Company; analyzes CEO performance in executive session in conjunction with the Executive Compensation and Management Resources Committee Chair; maintains regular contact with members of the Board and meeting individually with each independent director; and leads the Board self-evaluation process, interviewing each director, together with the Chairman, and reviews the feedback received with the full Board; attends meetings held by each of the Board’s committees.
Proxy / lead director activities and independent executive sessions · Filed 10/03/2026
In turn, throughout 2025, Board agendas included external speakers in order to be responsive to that request.
Proxy / implemented response to board evaluation feedback · Filed 10/03/2026
We differentiate from other providers by bringing together incumbency with enterprises, deep expertise in technology, industries and business processes, a broad go-to-market reach including an ecosystem of partners and alliances, and a strong focus on innovation.
Business / issuer description of differentiation · Filed 24/02/2026
IBM’s Intellectual Property Portfolio May Not Prevent Competitive Offerings, and IBM May Not Be Able to Obtain Necessary Licenses: The company’s patents and other intellectual property may not prevent competitors from independently developing products and services similar to or duplicative to the company’s, nor can there be any assurance that the resources invested by the company to protect its intellectual property will be sufficient or that the company’s intellectual property portfolio will adequately deter misappropriation or improper use of the company’s technology.
Risk factors / limits of intellectual property protection · Filed 24/02/2026
Our competitors include global firms such as Accenture, Capgemini, India-based service providers, management consulting firms, the consulting practices of public accounting firms, engineering service providers, and niche specialists.
Business / named Consulting competitors · Filed 24/02/2026
Our principal competitors include: Dell Technologies, Hewlett-Packard Enterprise (HPE), Intel, NetApp and Pure Storage as well as original device manufacturers (ODMs) who provide systems that are re-branded.
Business / named Infrastructure competitors · Filed 24/02/2026
Many clients redirected spending toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.
MD&A / client purchases ahead of expected infrastructure price increases · Filed 23/07/2026
Pre-tax income from continuing operations of $3.9 billion increased 3.0 percent and pre-tax margin was 11.7 percent, a decline of 0.2 points as compared to the first six months of 2025.
MD&A / first-half GAAP pre-tax income and margin · Filed 23/07/2026
