IBM (IBM) is expected to post a solid Q2 and modestly raise its 2026 guidance, supported by continued software momentum and early integration benefits from its recent Confluent acquisition, BofA Securities said Monday in a report.

Investors are likely to focus on the performance of the Red Hat unit, the pace of integrating Confluent, and the near-term earnings dilution tied to the deal, BofA said. Confluent provides data-streaming and event-processing software that IBM is integrating into its data and AI platforms.

BofA projects Q2 revenue of $18 billion, earnings per share of $3.03, and a 50-basis-point improvement in pretax income margin. IBM is also expected to increase its 2026 revenue and free cash flow guidance slightly, the report said.

"While we do not reflect this in our estimates, we see upside driven by faster Confluent synergies and stronger growth in software and power and storage in infrastructure," BofA said.

Confluent is expected to contribute about $340 million in revenue in Q2, representing about 5% of software growth, while Red Hat revenue is forecast to grow 10%, supported by higher usage and bookings despite tougher comparisons from a year earlier, the report said.

Q2 results are expected on July 22.

BofA raised its price target on IBM stock to $330 from $315 and maintained its buy rating.

Price: 296.71, Change: +7.19, Percent Change: +2.48