Shares of International Business Machines suffered their steepest daily decline in more than 25 years on Monday, after comments from AI startup Anthropic reignited investor anxiety about the future of legacy software businesses.
IBM stock sank 13.2%, marking its biggest one-day drop since October 18, 2000, and wiping tens of billions of dollars off the company’s market value.
The selloff followed a blog post from Anthropic promoting new capabilities of its Claude Code tool, which the startup said could dramatically speed up the modernisation of COBOL systems widely used on IBM mainframes.
However, the stock was back in the green in after-hours trading and was up by about 1.18%.
COBOL at the centre of concerns
COBOL, a programming language developed more than six decades ago, remains deeply embedded in critical banking, insurance, and government infrastructure.
IBM is a central player in this ecosystem, with most COBOL workloads running on its mainframe computers, making the language a significant part of its long-standing business.
In its post, Anthropic argued that artificial intelligence could upend the economics of modernising these systems.
“Modernizing a COBOL system once required armies of consultants spending years mapping workflows,” the company said, adding that tools like Claude Code could automate much of that process.
With AI, Anthropic claimed, teams could modernise COBOL codebases in quarters rather than years.
That assertion appeared to strike a nerve with investors, already on edge about the pace at which AI tools are encroaching on established software revenue streams.
Software stocks have been battered in recent months as markets reassess business models in light of increasingly capable AI systems.
The rollout of new plug-ins linked to Anthropic’s Claude model has been widely seen as a push by the startup to move beyond foundational models and into the application layer.
Shares of cybersecurity firms were also hit on Monday.
CrowdStrike and Datadog both slid, as investors weighed the potential implications of Anthropic’s newly announced security-focused tools.
Why analysts say the selloff was overdone
Despite the sharp market move, some analysts argued that the selloff in IBM shares was overdone.
Investment research firm Trefis said IBM has long been aware of the risks posed by AI-driven code modernisation and has been actively preparing for them.
IBM already offers its own Watsonx Code Assistant for Z, aimed at helping clients modernise COBOL workloads on mainframes.
According to Trefis, this suggests the company is effectively disrupting its own legacy business rather than being blindsided by an external threat.
“The company is, in effect, disrupting itself. Beyond that, IBM’s long-term growth thesis is anchored in hybrid cloud and AI, not in maintaining the status quo of legacy code. The mainframe business matters, but it isn’t the whole story,” it said.
Jefferies echoed that view on Monday, seeking to calm investor jitters after what it described as IBM’s most severe selloff since the dotcom era.
The research firm argued that IBM’s much-anticipated “re-acceleration” will ultimately depend on broader industry demand for cloud, AI, and automation.
Fundamentals remain intact
Trefis also pointed to IBM’s recent financial performance as evidence that the company is not in structural decline.
Revenue grew 4.5% over the past 12 months to about $65 billion, while quarterly revenue rose 9.1% year over year to $16 billion, outpacing the S&P 500’s growth rate over the same period.
Operating cash flow margins of just over 20% were broadly in line with the wider market.
The company carries roughly $67 billion in debt against a market capitalisation of around $240 billion, resulting in a debt-to-equity ratio higher than the broader market.
However, analysts note that IBM also holds about $15 billion in cash, giving it significant financial flexibility.
Should you buy IBM?
Despite the historic rout, Jefferies has maintained its “Buy” rating, setting a $370 price target.
Trefis argues that the crash has left IBM’s valuation at compelling levels compared to the broader market.
IBM currently trades at a price-to-free-cash-flow (P/FCF) ratio of 17.8, notably lower than the S&P 500’s 21.7.
Similarly, its price-to-sales (P/S) ratio of 3.2 sits below the market average of 3.4.
While its price-to-earnings (P/E) ratio of 26.6 carries a modest premium over the S&P 500’s 25.2, Trefis maintains this is defensible given the company’s robust cash generation and consistent dividend history.
“The Street certainly sees value here,” the firm noted, pointing out that the average analyst price target of $327 implies a nearly 50% upside.
Trefis’s own more conservative estimate of $294 still suggests a 32% gain from current levels.
Addressing the anxiety surrounding AI-driven disruption, Trefis dismissed fears that tools like Claude Code justify such a massive valuation wipeout.
“Is Claude Code a threat to IBM? Partially, yes,” the firm stated. “Is it a ‘27% in a single month’ threat? Certainly not—particularly when IBM is already building its own answer to the problem and its core growth drivers are increasingly in hybrid cloud and AI rather than legacy COBOL maintenance,” it said.
Trefis concluded that for long-term investors, the current price represents a “compelling entry point” in a company that has historically proven resilient through economic and technological downturns.
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