⚠ Sixty-Two Billion of Debt, Eight Billion of CashModerate threat

IBM (IBM) — threat to the moat

IBM's cash has fallen to $8.2 billion while its debt reached $62 billion, and the dividend and the deals both claim the same free cash flow.

IBM's balance sheet is carrying more than it did two years ago, and its cash is lower. Total debt was $50,949 million at the end of 20221, $54,973 million at the end of 2024 and $61,260 million at the end of 20252. At the end of June 2026 it was $62.0 billion, including $13.0 billion of Financing debt3. Cash, restricted cash and marketable securities fell to $8.2 billion from $14.5 billion at the year end4.

Total debt, year end ($M)50,949202256,547202354,973202461,260202562,000Jun 2026IBM Annual Reports 2023-2025; Q2 2026 results release
Up $11 billion since 2022.

The debt is partly the Financing business, which lends against client purchases, and partly acquisitions. IBM spent $10.5 billion on acquisitions in the first half of 20265. Interest expense rose from $1,607 million in 2023 to $1,935 million in 20256.

The dividend is the fixed claim. IBM paid $6,255 million in 20257, about 59% of net income8, and has raised its quarterly dividend for 31 consecutive years9. It has not bought back shares since the Red Hat deal in 201910.

The balance sheet is also short of working capital. Current liabilities exceeded current assets by $7,514 million at the end of June 202611. That is manageable for a company with $14.7 billion of annual free cash flow12, but it leaves little room for another large purchase without more borrowing.

IBM keeps credit lines in reserve for exactly this position. In June 2026 it extended the maturity of its $2.5 billion three-year and $7.5 billion five-year credit agreements13, and in August it issued notes due 2030 and 2034 carrying coupons of 4.100% and 4.750%14. Its own estimate of the interest-rate sensitivity of its financial instruments is a decrease in fair value of about $1.1 billion for a 10% adverse move15. None of this is distress; it is a company that has chosen to be more leveraged in order to buy growth.

It is worth watching rather than fearing, for now. The figure that would raise it is cash: at $8.2 billion in June16, a further fall below $6 billion with no slowing in acquisitions would mean IBM was funding its dividend and its deals with debt.

The number that tests this threat
Reported
Cash, restricted cash and marketable securities
$8.2bn (Jun 2026), from $14.5bn

The cushion under the dividend and the deals; a fall below $6bn with acquisitions continuing would mean both are being funded with debt.

Source: IBM Q2 2026 results release ↗
References
  1. ReportedTotal debt was $50,949 million at the end of 2022, $54,973 million at the end of 2024 and $61,260 million at the end of 2025.
    IBM 2023 Annual Report (Form 10-K exhibit) - Apptio purchase price, 2022-2023 segment pre-tax income, Red Hat growth, total debt. — FY2023 · publ. February 2024 · source ↗
  2. ReportedTotal debt was $50,949 million at the end of 2022, $54,973 million at the end of 2024 and $61,260 million at the end of 2025.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - financial statements and notes: income statement, cash flow, borrowings, goodwill, acquisitions, pensions and market risk. — FY2025 · publ. 24 February 2026 · source ↗
  3. ReportedAt the end of June 2026 it was $62.0 billion, including $13.0 billion of Financing debt.
    IBM second-quarter 2026 results release, Form 8-K exhibit 99.1 - cash, debt, acquisitions, free cash flow, backlog and full-year expectations. — Q2 2026 · publ. 22 July 2026 · source ↗
  4. ReportedCash, restricted cash and marketable securities fell to $8.2 billion from $14.5 billion at the year end.
    IBM second-quarter 2026 results release, Form 8-K exhibit 99.1 - cash, debt, acquisitions, free cash flow, backlog and full-year expectations. — Q2 2026 · publ. 22 July 2026 · source ↗
  5. ReportedIBM spent $10.5 billion on acquisitions in the first half of 2026.
    IBM second-quarter 2026 results release, Form 8-K exhibit 99.1 - cash, debt, acquisitions, free cash flow, backlog and full-year expectations. — Q2 2026 · publ. 22 July 2026 · source ↗
  6. ReportedInterest expense rose from $1,607 million in 2023 to $1,935 million in 2025.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - financial statements and notes: income statement, cash flow, borrowings, goodwill, acquisitions, pensions and market risk. — FY2025 · publ. 24 February 2026 · source ↗
  7. ReportedIBM paid $6,255 million in 2025, about 59% of net income, and has raised its quarterly dividend for 31 consecutive years.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - financial statements and notes: income statement, cash flow, borrowings, goodwill, acquisitions, pensions and market risk. — FY2025 · publ. 24 February 2026 · source ↗
  8. Moat Explorer calcIBM paid $6,255 million in 2025, about 59% of net income, and has raised its quarterly dividend for 31 consecutive years.
    Moat Explorer calculation from IBM's reported figures ($ millions unless stated). Segment mix 2025: Software 29,962 / 67,472 = 44.4% of segment revenue and 9,920 / 16,364 = 60.6% of segment profit; Consulting 21,055 / 67,472 = 31.2% and 2,464 / 16,364 = 15.1%; Infrastructure 15,718 / 67,472 = 23.3% and 3,458 / 16,364 = 21.1%; Financing 737 / 67,472 = 1.1% and 521 / 16,364 = 3.2%. Segment revenue below reported revenue: 60,530 - 59,621 = 909 (2022); 61,860 - 61,229 = 631 (2023); 62,753 - 62,510 = 243 (2024); 67,535 - 67,472 = 63 (2025). Growth: revenue 67,535 / 62,753 - 1 = 7.6% (2025); 62,753 / 61,860 - 1 = 1.4% (2024); Q2 2026 17,162 / 16,977 - 1 = 1.1%; Software 25,011 / 23,629 - 1 = 5.8%, 27,085 / 25,011 - 1 = 8.3%, 29,962 / 27,085 - 1 = 10.6%; Software Q2 2026 7,761 / 7,387 - 1 = 5.1%; Consulting 20,884 / 20,058 - 1 = 4.1%, 20,692 / 20,884 - 1 = -0.9%, 21,055 / 20,692 - 1 = 1.8%, 21,055 / 20,058 - 1 = 5.0% over three years, Q2 2026 5,327 / 5,314 - 1 = 0.2%; Infrastructure 14,593 / 15,288 - 1 = -4.5%, 14,020 / 14,593 - 1 = -3.9%, 15,718 / 14,020 - 1 = 12.1%, Q2 2026 3,835 / 4,142 - 1 = -7.4%; Financing 737 / 713 - 1 = 3.4%, Q2 2026 186 / 166 - 1 = 12.0%; Transaction Processing 8,603 / 7,714 - 1 = 11.5% and 8,603 - 7,714 = 889 added 2023-2025; Hybrid Cloud 7,327 - 5,827 = 1,500 added 2023-2025; 11% to 13% of 7,327 = 806 to 952 a year; OpenShift 30% x 2.0bn = 0.6bn a year; Infrastructure Support 5,100 / 6,021 - 1 = -15.3% (2021-2025) and 4,800 / 5,100 - 1 = -5.9%; research and development 8,316 / 7,479 - 1 = 11.2%; Software segment profit 9,920 / 7,012 - 1 = 41.5%; Consulting segment profit 2,464 / 1,871 - 1 = 31.7%; financing receivables 15,193 / 11,738 - 1 = 29.4%; total debt 62.0bn - 50.9bn = 11.1bn since 2022. Shares: mainframe-linked revenue 10,618 + 8,603 + 5,100 = 24,321, and 24,321 / 67,535 = 36.0%; Hybrid Cloud 7,327 / 29,962 = 24.5% of Software; OpenShift 2.0 / 24.6 = 8.1% of software ARR; June 2026 ARR 24.6bn / 2025 Software revenue 29.962bn = 82.1%; revenue outside the United States 40,643 / 67,535 = 60.2%, so about 60%; research and development 8,316 / 67,535 = 12.3% of revenue; quantum more than 10bn / 5 years = more than 2bn a year, and 2.0 / 8.316 = 24%, about a quarter; goodwill 67,717 / 151,880 = 44.6% of total assets; goodwill plus intangibles (67,717 + 11,391) / 151,880 = 52.1%; other assets 151,880 - 67,717 - 11,391 = 72,772; HashiCorp goodwill 4,684 / 7,433 = 63.0%; Confluent goodwill 7,238 / 11,602 = 62.4%, other net assets 11,602 - 7,238 = 4,364; stock-based compensation 1,685 / 16,364 = 10.3% of segment profit; Kyndryl spin 55,179 / 73,620 - 1 = -25.0% of 2020 revenue, about a quarter. Margins: Software Q2 2025 2,296 / 7,387 = 31.1%; Consulting Q2 2025 562 / 5,314 = 10.6%; Infrastructure Q2 2026 835 / 3,835 = 21.8% and Q2 2025 965 / 4,142 = 23.3%; total segment profit Q2 2026 4,092 / 17,110 = 23.9% and Q2 2025 4,003 / 17,009 = 23.5%; Financing Q2 2026 108 / 186 = 58% (reported 58.0%); pre-tax margin 10,328 / 67,535 = 15.3%; Global Technology Services 2020 117 / 27,039 = 0.4%; gross margin Q2 2026 9,907 / 17,162 = 57.7% and Q2 2025 9,977 / 16,977 = 58.8%. Red Hat: 7,327 / 35,100 = 20.9% of consideration; pre-tax at the Software margin 0.331 x 7,327 = 2,425, and 2,425 / 35,100 = 6.9%, about 7%; after a 21% tax 6.9% x 0.79 = 5.5%; revenue needed for 8% after tax 0.08 x 35,100 / (0.331 x 0.79) = 10,738, about 10.7bn, which is 10,738 / 7,327 = 1.47 times 2025 revenue: about 3.2 years at 12.5% growth, 4.4 years at 9% and 7.8 years at 5%. Cash and capital: acquisitions plus dividends 2025 8,294 + 6,255 = 14,549, and 14,549 / 14,734 = 98.7% of free cash flow; first half 2026 acquisitions 10.5bn / free cash flow 4.8bn = 2.2 times; dividends 6,255 / 10,593 = 59.0% of net income; Consulting backlog 31.9bn / 21.055bn = 1.5 years of revenue; remaining performance obligations 71bn - 68bn = 3bn lower in six months; pension risk transfers 16 + 6 + 1.2 = 23.2bn; defined-benefit obligations 14,460 + 29,872 = 44,332 against plan assets 18,073 + 26,733 = 44,806; free cash flow guidance 14.7bn + 1.0bn = 15.7bn. Further: revenue per employee 67,535 / 264.3 thousand = about 255,500 dollars; Q2 2026 Software share of segment profit 2,502 / 4,092 = 61.1%; first-half Software 14,813 / 13,722 - 1 = 8.0%; amortisation of acquired intangibles 2,166 / 1,627 - 1 = 33.1%; free cash flow 14.7 / 6.5 = 2.3 times (2021-2025); Q2 2026 Transaction Processing 2,208 - 2,030 = 178 lower, Data 1,782 - 1,499 = 283 higher, Hybrid Cloud 1,998 - 1,796 = 202 higher, Transaction Processing above Hybrid Cloud by 2,030 - 1,998 = 32; share price 225.51 / 332.46 - 1 = -32.2% from the 52-week high; first half 2026 Hybrid Cloud 3,903 / 3,483 - 1 = 12.1%, Transaction Processing 3,963 / 4,037 - 1 = -1.8%, Hybrid Infrastructure 4,678 / 4,512 - 1 = 3.7%, Infrastructure Support 2,483 / 2,515 - 1 = -1.3%, Automation 3,692 / 3,467 - 1 = 6.5%, Data 3,256 / 2,736 - 1 = 19.0%, Financing 406 / 357 - 1 = 13.7%, Strategy and Technology 5,829 / 5,702 - 1 = 2.2%, Intelligent Operations 4,770 / 4,680 - 1 = 1.9%; Strategy and Technology Q2 2026 2,933 / 2,920 - 1 = 0.4%; Infrastructure Support 2021 share 6,021 / 14,188 = 42.4%; Infrastructure 2020 pre-tax margin 1,654 / 14,533 = 11.4%; Consulting 2020 pre-tax margin 1,034 / 16,257 = 6.4%; buybacks 2015-2019 4,609 + 3,502 + 4,340 + 4,443 + 1,361 = 18,255; Hybrid Cloud 7,327 / 67,535 = 10.8% of revenue, about a tenth; acquisitions 2023 to June 2026 5.1 + 3.3 + 8.3 + 10.5 = 27.2bn; HashiCorp net of acquired cash and securities 7,433 - 929 - 331 = 6,173; ARR 24.6 - 21.3 = 3.3bn from end-2024 to June 2026; net interest excluding Financing 1,312 / 984 - 1 = 33.3%; 2024 signings 25,103 / 20,692 = 1.21, about 21% above revenue; generative AI book 12.5 - 9.5 = 3.0bn added in Q4 2025; EMEA growth gap 14.2 - 9.0 = 5.2 points; revenue 57,350 / 73,620 - 1 = -22.1% from 2020 as filed to 2021. Trailing twelve months to June 2026: revenue 67,535 - 31,519 + 33,079 = 69,095; net income 10,593 - 3,249 + 3,381 = 10,725; P/E 212,460 / 10,725 = 19.8; P/S 212,460 / 69,095 = 3.07 - cash flow, acquisitions, debt, pensions, backlog and the Red Hat return. — FY2015-Q2 2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in IBM's Annual Reports, Forms 10-Q, results releases and market data; operands shown in the source line.
  9. ReportedIBM paid $6,255 million in 2025, about 59% of net income, and has raised its quarterly dividend for 31 consecutive years.
    IBM first-quarter 2026 results release, Form 8-K exhibit 99.1 - IBM Z growth and the 31st consecutive annual dividend increase. — Q1 2026 · publ. 22 April 2026 · source ↗
  10. ReportedIt has not bought back shares since the Red Hat deal in 2019.
    IBM 2019 Annual Report (Form 10-K exhibit 13) - the Red Hat acquisition, its consideration and purchase price allocation, and the suspension of share repurchases. — FY2019 · publ. February 2020 · source ↗
  11. ReportedCurrent liabilities exceeded current assets by $7,514 million at the end of June 2026.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - income statement, segment table, RPO, pensions and working capital. — Q2 2026 · publ. 23 July 2026 · source ↗
  12. ReportedThat is manageable for a company with $14.7 billion of annual free cash flow, but it leaves little room for another large purchase without more borrowing.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - financial statements and notes: income statement, cash flow, borrowings, goodwill, acquisitions, pensions and market risk. — FY2025 · publ. 24 February 2026 · source ↗
  13. ReportedIn June 2026 it extended the maturity of its $2.5 billion three-year and $7.5 billion five-year credit agreements, and in August it issued notes due 2030 and 2034 carrying coupons of 4.100% and 4.750%.
    IBM Form 8-K, Item 1.01 - extension of the $2.5 billion three-year and $7.5 billion five-year credit agreements. — June 2026 · publ. 22 June 2026 · source ↗
  14. ReportedIn June 2026 it extended the maturity of its $2.5 billion three-year and $7.5 billion five-year credit agreements, and in August it issued notes due 2030 and 2034 carrying coupons of 4.100% and 4.750%.
    IBM Form 8-K - issuance of 4.100% notes due 2030 and 4.750% notes due 2034. — August 2026 · publ. August 2026 · source ↗
  15. ReportedIts own estimate of the interest-rate sensitivity of its financial instruments is a decrease in fair value of about $1.1 billion for a 10% adverse move.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - segment note: segment revenue, segment profit, margins and reconciliation to reported revenue. — FY2025 · publ. 24 February 2026 · source ↗
  16. ReportedThe figure that would raise it is cash: at $8.2 billion in June, a further fall below $6 billion with no slowing in acquisitions would mean IBM was funding its dividend and its deals with debt.
    IBM second-quarter 2026 results release, Form 8-K exhibit 99.1 - cash, debt, acquisitions, free cash flow, backlog and full-year expectations. — Q2 2026 · publ. 22 July 2026 · source ↗
Sources
Generated September 28, 2026