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IBM Is Up 11.1% in Three Months. Can Its Momentum Keep Building Now?
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Key Takeaways
IBM shares rose 11.1% in three months, supported by 6% revenue growth and an 11% rise in operating EPS.
Software revenues grew 9%, led by 11% Red Hat growth and 20% Data growth, while recurring revenue rose 8%.
IBM trades at 19.3X forward earnings versus its 17.3X historical median.
International Business Machines Corporation (IBM - Free Report) shares have gained 11.1% in the past three months, putting the focus on whether better operating execution can support further upside.
The third quarter strengthened that case, with faster Software growth, improved transaction execution and wider operating margins. Still, uneven enterprise spending, mainframe cycles and a valuation above IBM's historical median keep the setup balanced.
IBM's Three-Month Gain Meets Stronger Execution
IBM's third-quarter revenue growth accelerated to 6% at constant currency, while operating earnings per share increased 11% year over year. Operating pretax margin expanded 70 basis points, reflecting productivity actions and better execution across the portfolio.
The quarter also showed improvement in areas that had raised timing concerns earlier in the year. Transaction Processing grew 10% and Infrastructure advanced 5% at constant currency. Yet mainframe-related demand can be cyclical, so sustaining the stock's recent gain will require continued execution beyond a single quarter.
IBM Software Growth Adds Fundamental Support
Software revenues increased 9% at constant currency. Red Hat grew 11%, Data advanced 20% and annual recurring revenue climbed 8% to $24.9 billion, giving IBM a larger recurring-revenue base to support its software-led strategy.
The competitive backdrop remains demanding. Microsoft Corporation (MSFT - Free Report) reported 43% growth in Azure and other cloud services in its fiscal fourth quarter of 2026, showing the scale of enterprise cloud demand. Oracle Corporation (ORCL - Free Report) posted 120% constant-currency growth in cloud infrastructure revenues in its fiscal first quarter of 2027, highlighting the pace of AI-related infrastructure expansion.
IBM's Consulting AI Backlog Is Still a Test
Generative AI represented about 35% of IBM Consulting backlog and 30% of segment revenues in the third quarter. That points to meaningful enterprise engagement as clients modernize applications, data foundations and workflows for AI.
Monetization remains the key test. Consulting revenues rose only 2% at constant currency, and segment profit margin declined modestly as IBM reinvested productivity gains into digital assets. Faster revenue conversion and profitable delivery would make the AI backlog a more visible contributor to the growth story.
IBM Valuation Could Cap Further Upside
IBM trades at 19.3X forward 12-month earnings, above its five-year median of 17.3X. The multiple is also close to the Zacks Computer and Technology sector's 19.8X and the S&P 500's 19.5X.
That valuation leaves less room for execution setbacks. Software growth, Consulting acceleration and margin expansion will need to remain on track for the stock to justify a sustained premium to its own historical norm.
IBM's Mixed Style Scores Temper the Setup
The bottom line is that IBM's operating momentum has improved, but the stock's near-term setup is not uniformly favorable. Better Software growth, recurring revenues and margin execution support the fundamental case, while Consulting conversion, spending variability and valuation remain checks on further gains.
IBM currently carries a Zacks Rank #3 (Hold), which reflects a neutral short-term earnings-revision signal. Its Growth Score of C is stronger than its Value Score of D, while the Momentum Score of F and VGM Score of F indicate weaker characteristics on those style measures. The recent share-price advance therefore sits alongside a mixed Zacks style profile rather than a broad confirmation across the scoring framework.
View the Zacks #1 Rank List
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IBM Is Up 11.1% in Three Months. Can Its Momentum Keep Building Now?
Key Takeaways
International Business Machines Corporation (IBM - Free Report) shares have gained 11.1% in the past three months, putting the focus on whether better operating execution can support further upside.
The third quarter strengthened that case, with faster Software growth, improved transaction execution and wider operating margins. Still, uneven enterprise spending, mainframe cycles and a valuation above IBM's historical median keep the setup balanced.
IBM's Three-Month Gain Meets Stronger Execution
IBM's third-quarter revenue growth accelerated to 6% at constant currency, while operating earnings per share increased 11% year over year. Operating pretax margin expanded 70 basis points, reflecting productivity actions and better execution across the portfolio.
The quarter also showed improvement in areas that had raised timing concerns earlier in the year. Transaction Processing grew 10% and Infrastructure advanced 5% at constant currency. Yet mainframe-related demand can be cyclical, so sustaining the stock's recent gain will require continued execution beyond a single quarter.
IBM Software Growth Adds Fundamental Support
Software revenues increased 9% at constant currency. Red Hat grew 11%, Data advanced 20% and annual recurring revenue climbed 8% to $24.9 billion, giving IBM a larger recurring-revenue base to support its software-led strategy.
The competitive backdrop remains demanding. Microsoft Corporation (MSFT - Free Report) reported 43% growth in Azure and other cloud services in its fiscal fourth quarter of 2026, showing the scale of enterprise cloud demand. Oracle Corporation (ORCL - Free Report) posted 120% constant-currency growth in cloud infrastructure revenues in its fiscal first quarter of 2027, highlighting the pace of AI-related infrastructure expansion.
IBM's Consulting AI Backlog Is Still a Test
Generative AI represented about 35% of IBM Consulting backlog and 30% of segment revenues in the third quarter. That points to meaningful enterprise engagement as clients modernize applications, data foundations and workflows for AI.
Monetization remains the key test. Consulting revenues rose only 2% at constant currency, and segment profit margin declined modestly as IBM reinvested productivity gains into digital assets. Faster revenue conversion and profitable delivery would make the AI backlog a more visible contributor to the growth story.
IBM Valuation Could Cap Further Upside
IBM trades at 19.3X forward 12-month earnings, above its five-year median of 17.3X. The multiple is also close to the Zacks Computer and Technology sector's 19.8X and the S&P 500's 19.5X.
That valuation leaves less room for execution setbacks. Software growth, Consulting acceleration and margin expansion will need to remain on track for the stock to justify a sustained premium to its own historical norm.
IBM's Mixed Style Scores Temper the Setup
The bottom line is that IBM's operating momentum has improved, but the stock's near-term setup is not uniformly favorable. Better Software growth, recurring revenues and margin execution support the fundamental case, while Consulting conversion, spending variability and valuation remain checks on further gains.
IBM currently carries a Zacks Rank #3 (Hold), which reflects a neutral short-term earnings-revision signal. Its Growth Score of C is stronger than its Value Score of D, while the Momentum Score of F and VGM Score of F indicate weaker characteristics on those style measures. The recent share-price advance therefore sits alongside a mixed Zacks style profile rather than a broad confirmation across the scoring framework.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.