International Business Machines' (IBM) shift toward a software-driven business model is setting the stage for faster revenue and margin growth, Oppenheimer said in a Friday note.

The firm expects IBM's software revenue to grow about 10% annually over the next two years, led by strength in its automation business and Red Hat growth.

IBM's consulting business is expected to grow at "low single-digits" and is backed by momentum in application services and artificial intelligence-related opportunities tied to its watsonx platform, Oppenheimer said.

"Investors are too conservative on IBM's transition" to a software-centric company, with the stock still covered by "multiple legacy IT hardware/services analysts," according to the note.

Oppenheimer initiated coverage of IBM with an outperform rating and a $360 price target.

Shares of IBM were up more than 2% in recent trading Friday.

Price: 296.69, Change: +6.29, Percent Change: +2.17