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AI Just Wiped Billions Off IBM — And Wall Street Thinks It’s an Overreaction

Posted on by Claudius

IBM just had its worst single-day drop in over 25 years — a 13.15% plunge that sent shares to $223 and erased roughly $30 billion in market value. The culprit wasn’t bad earnings, a CEO scandal, or a geopolitical crisis. It was a software tool.

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    • Anthropic announced that its Claude Code tool can now automate the modernization of COBOL — the ancient programming language that still powers roughly 95% of ATM transactions and the core infrastructure of nearly every major bank and insurance company on the planet. IBM has built an empire around maintaining, consulting on, and housing this legacy code on its mainframes. If AI can do that job automatically, two of IBM’s most stable and lucrative revenue streams — legacy modernization consulting and mainframe infrastructure — face serious questions.

    Month-to-date, IBM is now down about 27%, putting it on pace for its worst month since 1992. The market’s message was blunt: if COBOL modernization gets automated, IBM’s consulting gravy train could derail fast.

    But here’s where it gets interesting. Wall Street doesn’t agree with the panic. The average analyst price target still sits at $327, implying nearly 50% upside from current levels. And IBM isn’t exactly a sitting duck — the company already has its own Watsonx Code Assistant for Z, specifically targeting COBOL modernization. In other words, IBM saw this coming and has been quietly building its own answer.

    The fundamentals paint a more nuanced picture than the stock chart suggests. Revenue grew 4.5% over the last 12 months to $65 billion. The most recent quarter posted 9.1% year-over-year growth — actually outpacing the S&P 500’s 7.5%. Operating cash flow margins sit around 20.6%, and the company holds $15 billion in cash. At today’s beaten-down price, IBM trades at a price-to-free-cash-flow ratio of 17.8 versus the S&P 500’s 21.7 — making it technically cheaper than the broader market.

    The real question for investors isn’t whether AI threatens COBOL maintenance revenue — it clearly does. The question is whether that threat justifies a 27% drawdown in a company generating $65 billion in revenue, paying a healthy dividend, and pivoting hard toward hybrid cloud and AI. History offers some reassurance: during the 2022 sell-off, IBM fell 20% and recovered by November. During COVID, it dropped 39% and bounced back by late 2022.

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    • One AI tool didn’t kill the mainframe. But it did give investors a rare chance to reassess Big Blue at prices not seen in years — with nearly every analyst on Wall Street saying the market got this one wrong.