IBM (IBM) is expected to report uneven performance in the software and consulting segments in Q2, but these will not be enough to slow the company's current momentum significantly, Morgan Stanley said in a note Wednesday.

The analysts said IBM remains one of the most contested stocks under their coverage. Bulls highlight the company's consistent execution, rising earnings-per-share and free cash flow estimates, and above-trend growth in 2025 fueled by the HCP acquisition, the z17 mainframe cycle, enterprise license agreements, and potential upside from artificial intelligence and quantum computing.

On the other hand, bears argue that IBM is already priced at a premium compared to its own history and peers, that organic software growth has been modest, that there are few fresh catalysts, and that expectations are too high amid the hype around AI and quantum, the analysts said.

The analysts said that their outlook blends both perspectives. "We believe the market is already pricing in more than just FCF upside...we believe the setup into Q2 earnings leans tactically cautious," but added they don't expect Q2 results "to be a material enough catalyst to fully derail IBM's momentum."

Morgan Stanley raised its price target to $253 from $233 while maintaining an equalweight rating on the stock.

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