This week, IBM made a stunning announcement that could change the future of quantum computing — and in this articles, I’m going to break down exactly what that means for investors. IBM has unveiled plans to build the world’s first large-scale, fault-tolerant quantum computer — a machine capable of performing complex quantum operations without errors. It’s called Starling, and it’s scheduled to launch by 2029.
But this article isn’t just about the technology — it’s about the investment case. I’m going to walk you through why IBM remains one of my top stocks to buy in the quantum computing space and why I believe it offers a more compelling investment opportunity than many of the so-called “pure-play” quantum stocks like IonQ, Rigetti, D-Wave, and others.
While there are several reasons I favor IBM, I’m going to highlight one key factor that often gets overlooked — yet makes a huge difference over the long term for quantum investors. Then I’ll take you through IBM’s business performance, valuation, and competitive advantages, and explain why I still think it’s not too late to buy — even after its recent strong performance.
IBM’s Starling Quantum Computer: A Bold Step Toward Fault-Tolerant Quantum
Let’s start with the news: on Tuesday, IBM revealed plans to build a large-scale, fault-tolerant quantum computer — a huge leap from today’s noisy intermediate-scale quantum (NISQ) machines, which are prone to errors and instability.
The system — named Starling — will be housed at IBM’s new quantum data center in upstate New York, and is expected to outperform today’s quantum computers by a factor of 20,000 in terms of operations per second. That’s a massive increase in computational throughput, and if IBM pulls this off, it will mark a transformational moment in the field of quantum technology.
IBM isn’t new to quantum. They’ve been at the forefront of quantum research for years, but this announcement signals the beginning of a new era: commercial-scale, error-free quantum computing that could eventually revolutionize industries ranging from materials science to finance, cybersecurity, logistics, and drug discovery.
But again — my thesis here isn’t just about the tech. Let’s turn to the investment case.
IBM’s Stock Performance: A Turnaround That’s Just Getting Started
IBM stock has been one of the best-performing large-cap tech stocks of 2025 so far. Year-to-date, the stock is up over 61%, vastly outperforming the broader market, which is up just 12.5% over the same period.
Importantly, I’ve had IBM rated as a “Buy” all year, and my most recent update to that recommendation was on March 11th, 2025. So far, that call has played out well. But even after this impressive run, I still believe IBM remains undervalued, particularly if you're bullish on the future of quantum computing.
According to my latest discounted cash flow (DCF) model, IBM’s intrinsic value is around $337 per share. With shares currently trading around $275, I still see meaningful upside. And we’re not just buying a story — we’re buying real earnings, real cash flow, and a growing enterprise that’s finally found its footing after years of restructuring.
From Shrinking Giant to Growth Story
Let’s rewind the clock for a moment. From 2005 to the early 2020s, IBM was in steady decline. Revenue dropped from a peak of $107 billion down to just $55 billion as the company shed legacy hardware businesses and divested lower-margin units.
But rather than clinging to outdated business lines, IBM made a bold decision: right-size the business and focus on higher-margin, future-forward segments like hybrid cloud, AI, and now quantum.
Today, that turnaround is showing signs of success. IBM’s revenue is back on a growth trajectory — climbing from $55 billion up to $62.88 billion in the latest fiscal year. This is the first sustained period of top-line growth in over a decade, and it’s giving investors a reason to re-evaluate the company.
Profitability Metrics: Quietly Getting Stronger
Even more important than revenue growth is profit quality. IBM has made significant progress here.
Let’s look at operating cash flow to sales — a key metric I track to evaluate the efficiency and health of a company’s revenue stream. In 2005, this figure stood at about 16%. Over time, it climbed as high as 33%, and has now settled into a healthy range of around 21–22%.
This suggests that IBM is not only growing again — it’s doing so profitably, and with a more disciplined capital structure. The company has shed unprofitable divisions and focused its efforts on repeatable, recurring revenue streams, particularly through its Red Hat-driven hybrid cloud business and strategic consulting services.
One Weak Spot: Return on Invested Capital (ROIC)
If there’s one area where I’d like to see improvement, it’s ROIC. In the most recent trailing 12-month period, IBM’s return on invested capital was about 7.3%, which is relatively modest. It has hovered in this range for several years and is down from a high of nearly 15% back in 2016.
However, I remain cautiously optimistic here. As IBM’s higher-margin businesses grow and its capital allocation improves, I believe ROIC has room to rise over the next several years — particularly if quantum begins to contribute meaningfully to margins.
IBM’s Strategic Moat: Trust, Reputation, and Enterprise Relationships
Here’s something you won’t find on a balance sheet: IBM’s institutional credibility.
When IBM enters a room to pitch enterprise solutions — whether cloud, AI, or quantum — it brings a brand reputation that few competitors can match. This is a company that’s been around for over a century. For many decision-makers, especially in conservative sectors like finance, defense, and healthcare, IBM is the "safe" choice.
This is crucial in emerging technologies like quantum computing. Customers don’t want to take risks on unknown vendors when betting on something as experimental as quantum. IBM’s long-standing relationships, combined with its brand equity, give it a sales advantage that newer players simply don’t have.
This isn’t just about prestige — it’s a real-world sales advantage. IBM doesn’t need to win every technical battle to win business. Sometimes, it just needs to be credible enough, and the customer will choose IBM because it's trusted and reliable.
Valuation: Still Undervalued, Even After the Rally
Let’s return to valuation.
Despite the strong rally in IBM stock, my DCF model shows it remains materially undervalued. As mentioned, I estimate fair value at $337/share, a solid margin above today’s market price. And importantly, that valuation is based on conservative assumptions: modest revenue growth, stable margins, and only moderate contribution from quantum over the next 5 years.
As quantum matures — and as IBM moves closer to monetizing it — I’ll likely revise that model upward. But even today, the valuation case is strong.
And if you’d like to see how I build these DCF models step-by-step, I have dozens of exclusive valuation breakdowns available to channel members. You can join for less than $5 a month and get access to all of those deep-dive videos.
The One Major Reason I Favor IBM Over Pure-Play Quantum Stocks
Now, let’s talk about that one key reason I said earlier — the reason I prefer IBM over smaller, pure-play quantum stocks.
It’s this: IBM’s weighted average cost of capital (WACC) is just 7.94%. That’s a major advantage.
In contrast, companies like IonQ, Rigetti, and D-Wave are operating at far higher WACCs — likely 15% or more — because they are loss-making, high-risk startups. They burn cash, they don’t generate profits, and they rely heavily on investor funding to stay alive.
That matters, because quantum computing is still years away from full commercialization. IBM’s Starling system, for example, won’t be ready until 2029. That means years of capital investment lie ahead — and the cost of that capital will determine long-term shareholder returns.
IBM can fund its R&D at a much lower cost, giving it a major capital efficiency advantage. It doesn’t need to dilute shareholders. It doesn’t need to issue expensive debt. It can internally fund this development through stable cash flows, while still paying a dividend and maintaining a strong balance sheet.
That’s a huge competitive edge, especially when you're talking about a multi-decade moonshot like quantum.
Final Thoughts: IBM Is the Best Risk-Adjusted Bet in Quantum Today
To wrap it up:
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IBM is on the verge of a quantum breakthrough with Starling, expected by 2029.
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The company has restructured and returned to growth, with improving profitability metrics.
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It benefits from institutional trust, global reach, and a low cost of capital — all crucial in a long-cycle industry like quantum.
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And even after a big move up in 2025, IBM remains undervalued, with meaningful upside if it continues executing.
So if you’re bullish on the future of quantum computing, but also care about risk management, cash flow, and valuation discipline, then IBM is one of the best stocks you can buy in this space today.
Let me know what you think in the comments. Are you holding IBM, or are you looking at other names in the quantum space?
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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