Jefferies analysts initiated coverage of IBM (NYSE:IBM) with a Hold rating and a price target of $180 per share. In their note issued on Friday, the analysts acknowledged IBM’s progress in software but see no major breakout potential.

The analysts pointed out their appreciation for IBM’s strategic shifts to reorient itself towards a software-centric model. This transformation includes significant steps like the acquisition of Red Hat, the spinoff of Kyndryl, and investments in AI and software go-to-market strategies. Furthermore, Jefferies views IBM as an “under-the-radar AI player,” with greater potential in consulting than in software.

The analysts highlighted IBM’s Watsonx platform, which provides substantial exposure to general AI workloads. However, Jefferies sees a more immediate AI opportunity in IBM’s strategic consulting division. This is because most clients are still in the early stages of implementing general AI strategies and require guidance on effectively utilizing these technologies.

Despite these positive aspects, Jefferies noted that IBM’s revenue growth is trailing behind its software industry peers, and it operates with lower margins. The analysts suggest that while IBM’s stock might see incremental gains, significant upside is limited unless there’s a considerable acceleration in its software segment.

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