International Business Machines stock may look cheap after a summer selloff, but Big Blue still has plenty to prove before skeptical analysts are ready to buy.

Truist analyst Arvind Ramnani launched coverage on IBM stock Friday with a Hold rating and a $240 price target, implying only modest upside from current levels. Shares ticked down 0.5% to $225.57 in premarket trading.

"We are constructive on IBM's structural position in enterprise computing, but cautious on near-term execution," Ramnani wrote.

IBM's enterprise business rests on four key pillars. A significant portion of the world's transaction data already resides on IBM Z -- a family of enterprise mainframe computer systems in which the "Z" stands for "zero downtime." Other offerings build on top of that base, including artificial-intelligence orchestration tools, cloud-based software, and a consulting arm to implement the technology.

As Ramnani put it, "IBM brings together the systems where client data sits, a layer that works across AI models, software that runs across environments, and the people to deploy it."

However, the analyst's primary concern is timing -- specifically, when enterprise spending on AI infrastructure will translate into direct demand for IBM. So far, investors have seen the opposite play out.

Shares suffered a historic single-day drop in July after IBM took the rare step of pre-announcing its quarterly results, a move not seen since the global financial crisis. As results broadly missed forecasts, management conceded it had failed to anticipate a sudden shift in client budgets toward supply-constrained AI infrastructure. The company also cited the slippage of dozens of large mainframe-related software contracts that failed to close before quarter-end.

Following the earnings miss and steep selloff, the stock trades at roughly 17 times forward earnings, a slight discount to the S&P 500's 19 times. But just because the stock is cheaper than the broader market doesn't mean Ramnani is rushing to rate it a Buy.

Encouragingly, he viewed the second-quarter earnings miss as "an execution and timing issue rather than a structural problem," aligning with comments from IBM CEO Arvind Krishna in July.

At the time, it was unclear whether the quarter was merely an operational hiccup or a sign of deeper structural erosion. However, many of those initial fears have since eased, as IBM confirmed that roughly one-third of those delayed software contracts had closed during the first three weeks of July.

Ramnani also views IBM's multi-model AI strategy as a competitive advantage. Its legacy mainframe division -- which houses the high-performance hardware required to process vast amounts of data -- continues to anchor the broader business, with the rollout of the new Z17 system shaping up to be one of IBM's strongest upgrade cycles on record.

Looking ahead, Ramnani expects a higher-margin software mix to drive performance. IBM has successfully transitioned from a services-heavy business into one powered primarily by software, which now accounts for nearly half of total revenue and 80% of recurring revenue. Ramnani describes this shift as delivering "a materially more durable earnings stream than the services-weighted business of six years ago."

He anticipates IBM's Transaction Processing segment to return to modest growth by 2027, accompanied by high-single-digit Software growth and a gradual recovery across Consulting.

Even so, Ramnani highlights key areas where execution must improve, emphasizing that deferred contracts must close without steep discounting and the need for sustained recovery in Transaction Processing. Another persistent headwind is sluggish organic growth -- particularly in Software, where momentum has largely been driven by acquisitions rather than internal expansion.

His caution reflects a broader divide on Wall Street. Among 22 analysts tracked by FactSet, 10 rate IBM a Buy or Overweight, another 10 sit at Hold, and just two recommend a Sell.

"Execution remains the near-to-mid-term issue," Ramnani said. For now, he is content to stay on the sidelines.