IBM (IBM) may not be an AI rocket ship like Nvidia (NVDA) or OpenAI, but it has carved out a steady, enterprise-focused niche in artificial intelligence.
In fact, that was a pivot that has helped revive its legacy brand over the past 18 months. But analysts remain split on whether this is a true AI transformation or simply a nostalgia trade.
“Is IBM a sustainable AI transformation story — or is it a ‘1990 nostalgia trade’ in a frothy market?” asked Holger Zschaepitz, author and editor at Welt.
He called IBM “one of the most polarizing stocks in tech this year,” pointing out that the company broke above its $250 billion market cap ceiling for the first time since 1999 and 2012.
Is IBM a sustainable AI transformation story – or is it a undefined1990s nostalgia tradeundefined in a frothy market? IBM – one of the most polarizing stocks in tech this year – has doubled over the past 18mths, breaking through its historic ~$250bn market cap ceiling from 1999 and 2012. (HT… pic.twitter.com/sqCuQVC8co
undefined Holger Zschaepitz (@Schuldensuehner) July 2, 2025
IBM briefly touched $300 in July before correcting about 17% to the mid-$240s.
Watsonx fuels the rally
IBM's recent run-up was driven in part by the rebranding of Watsonx, IBM’s generative AI and foundation model platform, which helped the company shed its old-line IT image.
At the same time, IBM has retained its “defensive stock” appeal, giving investors a safer way to play AI compared to high-growth peers.Its 2019 acquisition of Red Hat has also been a tailwind, reinforcing IBM’s role in hybrid cloud, which is a crucial layer for enterprise AI adoption.
Skepticism lingers, though. Many analysts argue IBM’s fundamentals haven’t kept pace with its stock surge and warn that momentum could soon stall.
Downgrades roll in
IBM stock has been on a streak of downgrades, with the latest from Erste Group’s Hans Engel, who cut his rating from “Buy” to “Hold.” He flagged sales growth “well below the sector average” and a valuation he sees as stretched.
He joins UBS analyst David Vogt, who has maintained a “Sell” rating, citing weakening demand in core businesses like software and consulting, which he expects to get worse with federal spending cuts.
Morgan Stanley’s Erik Woodring is also cautious. Even after IBM posted 8% revenue growth in Q2, he questioned whether the company can sustain that momentum heading into 2026.
Organic software revenue — a key growth driver — rose just 3.5% in the quarter. Without a major acquisition, Woodring warned, “the probability that growth decelerates in 2026 rises post-Q2.”
For bulls, IBM is a rare AI-plus-defensive play that is reinventing itself for the generative era. For skeptics, it’s an overhyped throwback propped up by market mania.
Either way, IBM has once again become one of tech’s most divisive names and investors will soon find out whether it’s truly an AI rebirth, or just a trip down memory lane.
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