International Business Machines (IBM) faces a tougher setup heading into fiscal 2026 as margin pressure, moderating software growth and near-term acquisition-related dilution offset a strong 2025 performance, BofA Securities said in a Tuesday note.

The brokerage expects a softer Q4 pre-tax income margin due to workforce rebalancing initiatives. BofA anticipates $400 million in Q4 workforce rebalancing expense, leading to 70 basis points of fiscal 2025 year-over-year PTI margin expansion.

Lower taxes are expected to partially offset earnings per share.

For fiscal 2026, IBM is likely to guide Software constant-currency revenue growth of about 10%, low-single-digits cc revenue growth in Consulting, and flat cc revenue growth in Infrastructure, totaling about 5% cc revenue growth for the company.

The Confluent acquisition is expected to close mid-year, with BofA modeling a roughly 2% inorganic revenue contribution to Software, while assuming about $0.40 of earnings dilution with minimal impact on free cash flow.

Fiscal 2025 revenue and earnings per share estimates were revised to $67.1 billion and $11.32 from $66.9 billion and $11.38, according to the note.

BofA reiterated a buy rating on International Business Machines and raised its price objective to $335 from $315.

Shares of IBM were down 1.6% in recent trading.

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