Last Update 25 Jan 26

Fair value Decreased 0.40%

CFLT: IBM Deal And Cloud Momentum Will Guide Future Share Performance

Narrative Update

Analysts trimmed their fair value estimate for Confluent slightly from about $30.77 to $30.65, reflecting a mix of cautious views around the pending IBM acquisition and downgrades, as well as more upbeat commentary on stabilizing cloud growth, improving margins, and ongoing product momentum that supports a lower assumed future P/E multiple.

Analyst Commentary

Recent research has highlighted a split in how professionals view Confluent, with some focused on execution and product momentum and others centering on the pending IBM takeover and deal mechanics. Here is how the key themes break out.

Bullish Takeaways

Bullish analysts lifted price targets into the US$27 to US$30 range after what they described as Confluent's best quarter of 2025, citing strong Q3 results that tracked ahead of their expectations.
Cloud consumption and Confluent Cloud were flagged as core growth drivers, with multiple firms pointing to solid usage trends, healthier optimization behavior, and better cross sell and new use case activity as support for the current valuation framework.
Several research notes pointed to strong subscription revenue and an improved full year outlook as reasons to raise price targets, tying this to better execution on newer offerings like the Data Stream Platform and Flink.
One large bank raised its IBM price target to US$335 and explicitly rolled its valuation work forward to calendar 2027 to account for the planned Confluent acquisition, which signals that some investors are treating Confluent as part of a longer term data and AI story inside IBM.

Bearish Takeaways

Bearish analysts moved ratings to more neutral stances, shifting Confluent to Market Perform and similar ratings, primarily on the grounds that the pending IBM takeover caps upside and reduces the appeal of owning the stock for standalone execution.
Some research framed the IBM deal as largely set, with no expectation of a competing bid, which can limit potential premium scenarios that event driven investors sometimes look for.
At least one firm described the setup into 2026 as tougher, even while acknowledging a strong 2025, which feeds into more cautious assumptions around how much value to ascribe to Confluent's recent operating performance.
Downgrades around the same time as the deal headlines reflect concern that, despite improving cloud and subscription trends, the risk and return profile is now more about deal timing and integration than about independent growth execution.

What's in the News

IBM entered into a definitive agreement to acquire Confluent for US$11.5b in cash, or US$31 per share. The deal was unanimously approved by both boards, and Confluent’s largest shareholders, who hold about 62% of the voting power, agreed to support the transaction (M&A Transaction Announcements).
Media reports earlier flagged IBM as being in advanced talks to acquire Confluent for about US$11b. These reports highlighted interest in data infrastructure tied to enterprise demand for cloud services and generative AI (M&A Rumors and Discussions, Wall Street Journal as cited).
Confluent scheduled a special or extraordinary shareholders meeting for February 12, 2026. This meeting is expected to be a key step in seeking shareholder approval for the IBM deal (Special/Extraordinary Shareholders Meeting).
Confluent issued 2025 guidance calling for Q4 subscription revenue of US$295.5m to US$296.5m and full year 2025 subscription revenue of US$1.1135b to US$1.1145b. The company stated these figures represent growth of about 18% for Q4 and 21% for the year (Corporate Guidance).
Confluent announced a series of AI focused products and partnerships, including Confluent Intelligence, Real-Time Context Engine, Confluent Private Cloud, Streaming Agents, expanded Tableflow integrations with Delta Lake, Databricks Unity Catalog and Microsoft OneLake, and a partnership with Workato. The Workato partnership connects Confluent Streaming Agents with Workato Enterprise MCP to automate multi step workflows across enterprise systems (Product-Related Announcements, Client Announcements, Strategic Alliances).

Valuation Changes

Fair Value Estimate has edged down slightly from about US$30.77 to US$30.65 per share, a modest adjustment to the prior appraisal.
Discount Rate has moved slightly lower from 8.78% to about 8.69%, indicating a small change in the assumed risk profile used in the model.
Revenue Growth has been nudged up from roughly 16.75% to about 16.77%, reflecting a very small adjustment to the growth outlook used in the valuation inputs.
Profit Margin has been raised modestly from about 12.42% to roughly 12.75%, implying a slightly higher assumed level of profitability over time.
Future P/E has been reduced from about 72.19x to roughly 69.86x, bringing the valuation multiple assumption down while still keeping it at a high level.

Surging real-time AI adoption and data-driven architectures are making Confluent's platform essential, fueling sustained revenue growth and high customer retention.
Expanded cloud offerings, ecosystem partnerships, and targeted go-to-market strategies are enhancing recurring revenues, margins, and long-term earnings potential.
Persistent customer optimization, competitive pressures, and slow adoption threaten Confluent's cloud revenue growth, margin expansion, and long-term ability to maintain premium positioning.

Catalysts

About Confluent

Operates a data streaming platform in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Rapid growth in real-time AI and agentic workloads is driving increased demand for enterprise-grade streaming and processing solutions, with Confluent seeing a projected 10x expansion in production AI use cases across hundreds of customers. This is likely to accelerate subscription and platform revenue over the medium to long term as these use cases mature and proliferate.
The proliferation of data volumes and the fundamental shift toward real-time, event-driven architectures are expanding Confluent's addressable market, positioning its platform as mission-critical for data-centric digital transformation across industries. This underpins sustained topline revenue growth and strong customer retention.
Expanding adoption of Confluent Cloud and new offerings like WarpStream and Flink, which are showing exponential ARR growth, contribute to higher recurring revenues, improved gross margins, and growing opportunities for multi-product upsell, directly supporting net margin and long-term earnings.
Strengthening and monetizing an extensive partner ecosystem-evidenced by >20% of business being partner-sourced and deepened alliances with global firms-enables broader customer acquisition, global reach, and embedded go-to-market motions. This is expected to drive both revenue growth and improved customer lifetime value.
Strategic investments in sales coverage ratios, go-to-market alignment, and multi-product selling are resulting in a significant increase in late-stage pipeline (+40% QoQ), setting the stage for improved conversion rates, accelerated land-and-expand motions, and improved revenue visibility/operating leverage in future quarters.

Confluent Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Confluent's revenue will grow by 16.5% annually over the next 3 years.
Analysts are not forecasting that Confluent will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Confluent's profit margin will increase from -29.3% to the average US Software industry of 13.1% in 3 years.
If Confluent's profit margin were to converge on the industry average, you could expect earnings to reach $220.6 million (and earnings per share of $0.55) by about September 2028, up from $-311.7 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 57.8x on those 2028 earnings, up from -21.3x today. This future PE is greater than the current PE for the US Software industry at 36.6x.
Analysts expect the number of shares outstanding to grow by 5.11% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.89%, as per the Simply Wall St company report.

Confluent Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Ongoing customer optimization and slower pace of new use case adoption-especially among large clients-are causing persistent headwinds in Confluent Cloud consumption growth, which is now expected to remain notably below prior historical rates for the foreseeable future, directly pressuring top-line cloud revenue and potentially impacting overall subscription revenue growth.
Large AI-native customers are moving towards self-management and reducing usage of fully managed Confluent Cloud offerings, leading to significant reductions in spending and transition to on-premise platforms, which risks margin compression and undermines recurring cloud-based revenue streams.
Competitive intensity from cloud service providers (CSPs) and potential customer migration to open-source alternatives or self-managed Kafka increase pricing pressure and churn risk, potentially impacting Confluent's ability to maintain premium pricing, gross margins, and long-term market share.
The cohort of smaller accounts ($20k–$100k ARR) is showing weak growth compared to larger segments, which could negatively impact the future pipeline for upselling and expansion into larger, more profitable accounts-suggesting possible stagnation in the customer base that fuels sustained ARR and revenue growth.
Despite positive momentum in new products (like Flink), their contribution remains insignificant relative to the overall business, and their growth may not be sufficient in the near
to mid-term to offset decelerating or contracting cloud streaming revenues, posing a risk to net margin expansion and long-term earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $24.687 for Confluent based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $20.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $220.6 million, and it would be trading on a PE ratio of 57.8x, assuming you use a discount rate of 8.9%.
Given the current share price of $19.23, the analyst price target of $24.69 is 22.1% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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