⚠ Goodwill Is Half the Balance SheetModerate threat

IBM (IBM) — threat to the moat

Half of IBM's assets are goodwill and intangibles, so its returns rest on acquisitions continuing to grow into their prices.

IBM's balance sheet is now mostly the price of other companies. Goodwill was $67,717 million and intangible assets $11,391 million at the end of 20251, together about 52% of total assets of $151,880 million23. Red Hat alone contributed $23.1 billion of goodwill in 20194; HashiCorp added $4,684 million in 20255 and Confluent $7,238 million in 20266.

IBM total assets, end of 2025 ($M)Goodwill 67,717 — 45%Intangible assets 11,391 — 8%All other assets 72,772 — 48%IBM 2025 Annual Report; other assets calculated
More than half the balance sheet is purchase premium.

Goodwill is not a cost until something goes wrong. But it means the return on IBM's capital depends on businesses whose purchase prices assumed years of growth. If any of them slows sharply, the write-down arrives in one quarter.

It also constrains the owners. Total debt rose from $54,973 million at the end of 2024 to $61,260 million at the end of 20257, and to $62.0 billion by June 20268, much of it to pay for these purchases.

The smaller deals add up too. Apptio, bought in 2023 for $4,612 million, added $3,541 million of goodwill9. StreamSets and webMethods, bought from Software AG in 2024 for about $2.3 billion, added $1,074 million10. In 2025 IBM also closed DataStax and other smaller deals for a combined $1,912 million11. None of these is large alone; together they are a steady addition to the part of the balance sheet that can only be written down.

The danger is real but not yet pressing. This turns serious if IBM recorded a goodwill impairment on any of its large software acquisitions, because that would be an admission that one of the prices will not be earned back.

References
  1. ReportedGoodwill was $67,717 million and intangible assets $11,391 million at the end of 2025, together about 52% of total assets of $151,880 million.
    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 ↗
  2. ReportedGoodwill was $67,717 million and intangible assets $11,391 million at the end of 2025, together about 52% of total assets of $151,880 million.
    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. Moat Explorer calcGoodwill was $67,717 million and intangible assets $11,391 million at the end of 2025, together about 52% of total assets of $151,880 million.
    Moat Explorer calculation from IBM's reported figures ($ 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 - growth rates and line totals. — 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.
  4. ReportedRed Hat alone contributed $23.1 billion of goodwill in 2019; HashiCorp added $4,684 million in 2025 and Confluent $7,238 million in 2026.
    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 ↗
  5. ReportedRed Hat alone contributed $23.1 billion of goodwill in 2019; HashiCorp added $4,684 million in 2025 and Confluent $7,238 million in 2026.
    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 ↗
  6. ReportedRed Hat alone contributed $23.1 billion of goodwill in 2019; HashiCorp added $4,684 million in 2025 and Confluent $7,238 million in 2026.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Software segment results and revenue categories. — Q2 2026 · publ. 23 July 2026 · source ↗
  7. ReportedTotal debt rose from $54,973 million at the end of 2024 to $61,260 million at the end of 2025, and to $62.0 billion by June 2026, much of it to pay for these purchases.
    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. ReportedTotal debt rose from $54,973 million at the end of 2024 to $61,260 million at the end of 2025, and to $62.0 billion by June 2026, much of it to pay for these purchases.
    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 ↗
  9. ReportedApptio, bought in 2023 for $4,612 million, added $3,541 million of goodwill.
    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 ↗
  10. ReportedStreamSets and webMethods, bought from Software AG in 2024 for about $2.3 billion, added $1,074 million.
    IBM 2024 Annual Report (Form 10-K exhibit) - January 2024 segment changes, 2022-2024 segment profit, pension risk transfers and settlement charges. — FY2024 · publ. 25 February 2025 · source ↗
  11. ReportedIn 2025 IBM also closed DataStax and other smaller deals for a combined $1,912 million.
    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 ↗
Sources
Generated September 28, 2026