IBM Stock Crash: Overreaction Or A Real Threat?
IBM just had its worst single-day drop in over 25 years – a 13.15% plunge to $223.35 on February 23, 2026. Month-to-date, the stock is down roughly 27%, on pace for its worst month since 1992. The trigger? Anthropic’s announcement that its “Claude Code” tool can automate COBOL modernization, directly threatening IBM’s mainframe business.
So the question is straightforward: is this a genuine structural threat, or is the market overreacting? We think it’s the latter.
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The Bear Case: Why the Market Panicked
COBOL isn’t a relic – it’s the backbone of global financial and enterprise infrastructure, and IBM has built a high-margin consulting and mainframe business around it. If Claude Code can automate what IBM charges premium rates for, two of IBM’s most stable revenue streams are at risk: legacy modernization consulting and mainframe infrastructure. That’s a real concern, and it’s fair that the market responded.
But Does the Punishment Fit the Crime?
Probably not. Here’s why.
IBM isn’t sitting still on this front. Its own Watsonx Code Assistant for Z is already targeting COBOL modernization, meaning IBM has been aware of – and actively preparing for – this disruption. The company is, in effect, disrupting itself. Beyond that, IBM’s long-term growth thesis is anchored in hybrid cloud and AI, not in maintaining the status quo of legacy code. The mainframe business matters, but it isn’t the whole story.
What Do the Fundamentals Say?
IBM’s fundamentals don’t suggest a company in structural decline. Revenue grew 4.5% over the last 12 months to $65 billion, and quarterly revenue just came in at $16 billion – up 9.1% year-over-year, actually ahead of the S&P 500’s 7.5%. Operating cash flow margin sits at 20.6%, nearly in line with the broader market. These are not the numbers of a business collapsing under competitive pressure.
The balance sheet deserves a closer look. Debt stands at $67 billion against a market cap of around $240 billion, giving a debt-to-equity ratio of 31.6% – elevated versus the S&P 500’s 20.2%. That’s worth monitoring. But with $15 billion in cash and a cash-to-assets ratio of 10.2% (well above the market’s 7.2%), IBM has meaningful financial flexibility.
Is the Valuation Compelling After the Drop?
Yes. At current levels, IBM trades at a P/FCF of 17.8 versus 21.7 for the S&P 500, and a P/S of 3.2 versus 3.4 – slightly cheaper than the broader market on those metrics. The P/E of 26.6 is modestly above the S&P 500’s 25.2, but given IBM’s cash generation and dividend history, that premium is defensible.
The Street certainly sees value here. The average analyst price target sits at $327 – implying nearly 50% upside from current levels. Our own estimate is somewhat more conservative at $294 per share, still representing approximately 32% upside.
How Has IBM Held Up in Past Crashes?
History offers some reassurance. During the 2022 inflation shock, IBM fell 20.2% peak-to-trough versus the S&P 500’s 25.4% – and recovered fully by November 2022. During the COVID crash, IBM dropped 39% but recovered by late 2022. Even through the Global Financial Crisis, IBM recovered by December 2009, well ahead of the broader market timeline. IBM has consistently shown it can absorb shocks and recover.
The Bottom Line
Is Claude Code a threat to IBM? Partially, yes. Is it a “27% in a single month” threat? Certainly not – particularly when IBM is already building its own answer to the problem and its core growth drivers are increasingly in hybrid cloud and AI rather than legacy COBOL maintenance.
The selloff looks like an overreaction. For long-term investors, the current price presents a compelling entry point with meaningful upside and a company that has repeatedly demonstrated resilience through downturns.
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