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IBM Stock Before Q3 Earnings Release: To Buy or Not to Buy?
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Key Takeaways
IBM's Q3 earnings are expected at $2.87 per share on $16.84 billion in revenues.
IBM's AI partnerships and hybrid cloud demand may boost Software and Consulting revenues.
IBM shares fell 17.8% in a year and trade at a premium valuation, warranting caution ahead of Q3 earnings.
International Business Machines Corporation (IBM - Free Report) is scheduled to report third-quarter 2026 earnings after the closing bell on Oct. 21. The Zacks Consensus Estimate for sales and earnings is pegged at $16.84 billion and $2.87 per share, respectively. Earnings estimates for IBM for 2026 have remained static at $12.33 per share over the past 60 days, but are up 0.08% for 2027 to $13.20.
IBM Estimate Trend
Image Source: Zacks Investment Research
Earnings Surprise History
The cloud and data platform provider delivered a four-quarter earnings surprise of 4.6%, on average, beating estimates thrice. In the last reported quarter, the company matched the earnings estimate.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not predict an earnings beat for IBM for the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
During the third quarter, IBM entered into a multi-year, $240 million agreement with Together AI to support the growing demand for enterprise artificial intelligence (AI) inference. The partnership will enable IBM to expand its cloud infrastructure offerings for open-source AI workloads and strengthen its position in the rapidly growing AI infrastructure market. IBM also introduced a new set of AI-powered experiences for the 2026 U.S. Open to make live tennis more personalized, informative and interactive for millions of fans worldwide. By turning complex court-level data into accessible insights, the company helped fans better understand the game through advanced technology. Such investments in innovation and collaborations will likely boost IBM’s commercial prospects and are likely to have generated incremental revenues for the Software segment.
During the to-be-reported quarter, IBM partnered with India-based AI company Sarvam to develop and test sovereign AI technologies for government agencies and regulated industries in the subcontinent. The collaboration aims to build AI systems that give organizations greater control over data, governance and operations while supporting digital transformation across the public sector. IBM also collaborated with Arm Holdings plc (ARM - Free Report) to give enterprises more software choices for mission-critical workloads. IBM’s latest processor will enable Arm-native Linux environments to run alongside z/OS and Linux on IBM Z, giving enterprises access to a broader software ecosystem while maintaining security, reliability and scalability. These are likely to have generated additional revenues for the Consulting segment.
However, despite solid hybrid cloud, quantum technology and AI traction, IBM faces stiff competition from Amazon Web Services and Microsoft’s Azure. The company is also facing challenges from AI firm Anthropic as the latter’s Claude Code tool can modernize legacy COBOL systems — a foundational programming language deeply embedded in IBM’s mainframe ecosystem. By proposing to substantially automate code exploration, documentation, refactoring and security analysis, Claude Code threatens to reduce enterprises’ reliance on specialized legacy service providers like IBM, putting its business model at stake. This is likely to redefine the competitive landscape, leading to a broad-based downslide across the sector. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes.
Price Performance
Over the past year, IBM has plummeted 17.8% against the industry’s rise of 140.6%, lagging its peers like Microsoft Corporation (MSFT - Free Report) and Amazon.com, Inc. (AMZN - Free Report) . While Microsoft has gained 5.8%, Amazon surged 19.8% over this period.
One-Year IBM Stock Price Performance
Image Source: Zacks Investment Research
Key Valuation Metric
From a valuation standpoint, IBM appears to be trading at a premium relative to the industry and above its mean. Going by the price/earnings ratio, the company shares currently trade at 17.73 forward earnings, higher than 10.74 for the industry and the stock’s mean of 17.2.
Image Source: Zacks Investment Research
Investment Considerations
IBM aims to benefit from the increasing propensity of business enterprises to undertake a cloud-agnostic and interoperable approach to secure multi-cloud management with a diligent focus on hybrid cloud and generative AI solutions. With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment and quantum computing, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which have led to a healthy demand trend.
However, IBM’s margins might have been strained by limited cost-cutting opportunities and intense competitive pressures, likely delaying key product launches. Stiff competition from established players and new challengers has dented its growth prospects. Management observed that rapidly evolving, industry-wide cybersecurity concerns adversely impacted the client’s buying patterns as quarterly capex spending shifted more toward servers, storage and memory purchases. This is likely to have affected its Infrastructure business in the quarter.
End Note
IBM is trading at a premium valuation, and investors could wait for a better entry point to cash in on its long-term fundamentals. The stock has also witnessed a downtrend in its price performance over the past year. Consequently, it might be prudent to trade with caution at the moment.
IBM expects its growth to be driven primarily by analytics, cloud computing and security services. A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities will likely be conducive to long-term growth. IBM is expected to benefit in the long run from strong demand for hybrid cloud and AI, which will likely drive growth in the Software and Consulting segments. Investors might therefore hold the stock for long-term gains.
View the Zacks #1 Rank List
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IBM Stock Before Q3 Earnings Release: To Buy or Not to Buy?
Key Takeaways
International Business Machines Corporation (IBM - Free Report) is scheduled to report third-quarter 2026 earnings after the closing bell on Oct. 21. The Zacks Consensus Estimate for sales and earnings is pegged at $16.84 billion and $2.87 per share, respectively. Earnings estimates for IBM for 2026 have remained static at $12.33 per share over the past 60 days, but are up 0.08% for 2027 to $13.20.
IBM Estimate Trend
Image Source: Zacks Investment Research
Earnings Surprise History
The cloud and data platform provider delivered a four-quarter earnings surprise of 4.6%, on average, beating estimates thrice. In the last reported quarter, the company matched the earnings estimate.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not predict an earnings beat for IBM for the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
IBM currently has an ESP of -0.63% with a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Upcoming Results
During the third quarter, IBM entered into a multi-year, $240 million agreement with Together AI to support the growing demand for enterprise artificial intelligence (AI) inference. The partnership will enable IBM to expand its cloud infrastructure offerings for open-source AI workloads and strengthen its position in the rapidly growing AI infrastructure market. IBM also introduced a new set of AI-powered experiences for the 2026 U.S. Open to make live tennis more personalized, informative and interactive for millions of fans worldwide. By turning complex court-level data into accessible insights, the company helped fans better understand the game through advanced technology. Such investments in innovation and collaborations will likely boost IBM’s commercial prospects and are likely to have generated incremental revenues for the Software segment.
During the to-be-reported quarter, IBM partnered with India-based AI company Sarvam to develop and test sovereign AI technologies for government agencies and regulated industries in the subcontinent. The collaboration aims to build AI systems that give organizations greater control over data, governance and operations while supporting digital transformation across the public sector. IBM also collaborated with Arm Holdings plc (ARM - Free Report) to give enterprises more software choices for mission-critical workloads. IBM’s latest processor will enable Arm-native Linux environments to run alongside z/OS and Linux on IBM Z, giving enterprises access to a broader software ecosystem while maintaining security, reliability and scalability. These are likely to have generated additional revenues for the Consulting segment.
However, despite solid hybrid cloud, quantum technology and AI traction, IBM faces stiff competition from Amazon Web Services and Microsoft’s Azure. The company is also facing challenges from AI firm Anthropic as the latter’s Claude Code tool can modernize legacy COBOL systems — a foundational programming language deeply embedded in IBM’s mainframe ecosystem. By proposing to substantially automate code exploration, documentation, refactoring and security analysis, Claude Code threatens to reduce enterprises’ reliance on specialized legacy service providers like IBM, putting its business model at stake. This is likely to redefine the competitive landscape, leading to a broad-based downslide across the sector. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes.
Price Performance
Over the past year, IBM has plummeted 17.8% against the industry’s rise of 140.6%, lagging its peers like Microsoft Corporation (MSFT - Free Report) and Amazon.com, Inc. (AMZN - Free Report) . While Microsoft has gained 5.8%, Amazon surged 19.8% over this period.
One-Year IBM Stock Price Performance
Image Source: Zacks Investment Research
Key Valuation Metric
From a valuation standpoint, IBM appears to be trading at a premium relative to the industry and above its mean. Going by the price/earnings ratio, the company shares currently trade at 17.73 forward earnings, higher than 10.74 for the industry and the stock’s mean of 17.2.
Image Source: Zacks Investment Research
Investment Considerations
IBM aims to benefit from the increasing propensity of business enterprises to undertake a cloud-agnostic and interoperable approach to secure multi-cloud management with a diligent focus on hybrid cloud and generative AI solutions. With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment and quantum computing, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which have led to a healthy demand trend.
However, IBM’s margins might have been strained by limited cost-cutting opportunities and intense competitive pressures, likely delaying key product launches. Stiff competition from established players and new challengers has dented its growth prospects. Management observed that rapidly evolving, industry-wide cybersecurity concerns adversely impacted the client’s buying patterns as quarterly capex spending shifted more toward servers, storage and memory purchases. This is likely to have affected its Infrastructure business in the quarter.
End Note
IBM is trading at a premium valuation, and investors could wait for a better entry point to cash in on its long-term fundamentals. The stock has also witnessed a downtrend in its price performance over the past year. Consequently, it might be prudent to trade with caution at the moment.
IBM expects its growth to be driven primarily by analytics, cloud computing and security services. A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities will likely be conducive to long-term growth. IBM is expected to benefit in the long run from strong demand for hybrid cloud and AI, which will likely drive growth in the Software and Consulting segments. Investors might therefore hold the stock for long-term gains.