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IBM Plummets 18.5% in the Past Year: Time to Reassess the Stock?
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Key Takeaways
IBM shares have lost 18.5% in a year, contrasting with the industry's 81.3% growth amid mounting AI threats.
Anthropic's Claude Code threatens IBM's legacy COBOL business, while pricing pressures hurt profitability.
Hybrid cloud demand, HashiCorp's buyout and watsonx support IBM's growth prospects despite competitive woes.
International Business Machines Corporation (IBM - Free Report) has declined 18.5% over the past year against the industry’s growth of 81.3% due to macroeconomic challenges and a potent threat from AI firm Anthropic that threatens its core legacy businesses. The stock has lagged peers like Microsoft Corporation (MSFT - Free Report) and Amazon.com, Inc. (AMZN - Free Report) . While Microsoft has gained 2.2%, Amazon has remained flat on average over this period.
One-Year IBM Stock Price Performance
Image Source: Zacks Investment Research
What Ails IBM?
IBM has long positioned itself as the dominant provider of mainframe systems optimized for high-volume, mission-critical workloads characterized by AI. Over decades, the company has built a durable revenue stream around maintaining, upgrading and modernizing legacy COBOL environments for large enterprises. The complexity of COBOL systems has historically served as a competitive moat. Many organizations hesitate to rewrite or replace these systems due to cost, operational risk and the shrinking pool of developers familiar with the language. But it appears that the moat may now be facing AI-driven erosion.
Anthropic’s Claude Code tool can reportedly modernize legacy COBOL systems — a foundational programming language deeply embedded in IBM’s mainframe ecosystem. With Claude Code proposing to substantially automate code exploration, documentation, refactoring and security analysis, it threatens to reduce enterprises’ reliance on specialized legacy service providers like IBM, putting its sustenance at stake. COBOL remains deeply embedded in global infrastructure and continues to run in production daily across financial institutions, airlines, retailers and government systems. If Claude Code meaningfully reduces the cost and complexity of analyzing and migrating legacy systems, it could compress pricing power in IBM’s Consulting segment, introducing a new competitive dynamic into a space that has historically been a labor-intensive and high-margin business for the company.
Margin Woes Dent IBM’s Prospects
To add to the woes, IBM is facing competition from Amazon Web Services and Microsoft Azure. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes. Weaknesses in its traditional business and foreign exchange volatility remain significant concerns.
IBM’s frequent acquisitions have also escalated integration risks. Buyouts have negatively impacted the company’s balance sheet, resulting in high levels of goodwill and net intangible assets. Moreover, a highly leveraged balance sheet has been troubling IBM over time.
Image Source: Zacks Investment Research
Hybrid Cloud, AI Demand: IBM’s Likely Saviors
Despite the setbacks, IBM is poised to benefit from healthy demand trends for hybrid cloud and AI, which drive the Software and Consulting segments. The company’s growth is expected to be aided by analytics, cloud computing and security in the long run. A combination of a better business mix, improving operating leverage through productivity gains and increased investment in growth opportunities will likely boost profitability.
With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment, 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 firms to undertake a cloud-agnostic and interoperable approach to highly secure multi-cloud management, translating into a healthy demand for IBM hybrid cloud solutions.
The buyout of HashiCorp has significantly augmented IBM’s capabilities to assist enterprises in managing complex cloud environments. HashiCorp’s toolsets complement IBM RedHat’s portfolio, bringing additional functionalities for cloud infrastructure management and bolstering its hybrid multi-cloud approach. IBM’s watsonx platform is likely to be the core technology platform for its AI capabilities. watsonx delivers the value of foundational models to the enterprise, enabling them to be more productive.
Estimate Revision Trend
IBM is currently witnessing an uptrend in estimate revisions. Earnings estimates for IBM for 2026 have moved up 1.5% to $12.41 over the past year, while the same for 2027 has increased 1.3% to $13.24. The positive estimate revision portrays bullish sentiment about the stock’s growth potential.
Image Source: Zacks Investment Research
End Note
IBM has invested heavily in its own AI capabilities and could incorporate generative AI into its consulting workflows to improve efficiency rather than lose relevance. A strong emphasis on quantum computing and hybrid cloud is driving value for customers. With improving earnings estimates, the stock is witnessing positive investor perception.
However, IBM’s growth is dented by high operating costs and stiff competition that reduce its profitability. The company faces a potent threat from Anthropic and needs to fine-tune its business model to remain competitive. With a Zacks Rank #3 (Hold), IBM appears to be treading in the middle of the road, and new investors may be better off trading with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
Image: Bigstock
IBM Plummets 18.5% in the Past Year: Time to Reassess the Stock?
Key Takeaways
International Business Machines Corporation (IBM - Free Report) has declined 18.5% over the past year against the industry’s growth of 81.3% due to macroeconomic challenges and a potent threat from AI firm Anthropic that threatens its core legacy businesses. The stock has lagged peers like Microsoft Corporation (MSFT - Free Report) and Amazon.com, Inc. (AMZN - Free Report) . While Microsoft has gained 2.2%, Amazon has remained flat on average over this period.
One-Year IBM Stock Price Performance
Image Source: Zacks Investment Research
What Ails IBM?
IBM has long positioned itself as the dominant provider of mainframe systems optimized for high-volume, mission-critical workloads characterized by AI. Over decades, the company has built a durable revenue stream around maintaining, upgrading and modernizing legacy COBOL environments for large enterprises. The complexity of COBOL systems has historically served as a competitive moat. Many organizations hesitate to rewrite or replace these systems due to cost, operational risk and the shrinking pool of developers familiar with the language. But it appears that the moat may now be facing AI-driven erosion.
Anthropic’s Claude Code tool can reportedly modernize legacy COBOL systems — a foundational programming language deeply embedded in IBM’s mainframe ecosystem. With Claude Code proposing to substantially automate code exploration, documentation, refactoring and security analysis, it threatens to reduce enterprises’ reliance on specialized legacy service providers like IBM, putting its sustenance at stake. COBOL remains deeply embedded in global infrastructure and continues to run in production daily across financial institutions, airlines, retailers and government systems. If Claude Code meaningfully reduces the cost and complexity of analyzing and migrating legacy systems, it could compress pricing power in IBM’s Consulting segment, introducing a new competitive dynamic into a space that has historically been a labor-intensive and high-margin business for the company.
Margin Woes Dent IBM’s Prospects
To add to the woes, IBM is facing competition from Amazon Web Services and Microsoft Azure. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes. Weaknesses in its traditional business and foreign exchange volatility remain significant concerns.
IBM’s frequent acquisitions have also escalated integration risks. Buyouts have negatively impacted the company’s balance sheet, resulting in high levels of goodwill and net intangible assets. Moreover, a highly leveraged balance sheet has been troubling IBM over time.
Image Source: Zacks Investment Research
Hybrid Cloud, AI Demand: IBM’s Likely Saviors
Despite the setbacks, IBM is poised to benefit from healthy demand trends for hybrid cloud and AI, which drive the Software and Consulting segments. The company’s growth is expected to be aided by analytics, cloud computing and security in the long run. A combination of a better business mix, improving operating leverage through productivity gains and increased investment in growth opportunities will likely boost profitability.
With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment, 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 firms to undertake a cloud-agnostic and interoperable approach to highly secure multi-cloud management, translating into a healthy demand for IBM hybrid cloud solutions.
The buyout of HashiCorp has significantly augmented IBM’s capabilities to assist enterprises in managing complex cloud environments. HashiCorp’s toolsets complement IBM RedHat’s portfolio, bringing additional functionalities for cloud infrastructure management and bolstering its hybrid multi-cloud approach. IBM’s watsonx platform is likely to be the core technology platform for its AI capabilities. watsonx delivers the value of foundational models to the enterprise, enabling them to be more productive.
Estimate Revision Trend
IBM is currently witnessing an uptrend in estimate revisions. Earnings estimates for IBM for 2026 have moved up 1.5% to $12.41 over the past year, while the same for 2027 has increased 1.3% to $13.24. The positive estimate revision portrays bullish sentiment about the stock’s growth potential.
Image Source: Zacks Investment Research
End Note
IBM has invested heavily in its own AI capabilities and could incorporate generative AI into its consulting workflows to improve efficiency rather than lose relevance. A strong emphasis on quantum computing and hybrid cloud is driving value for customers. With improving earnings estimates, the stock is witnessing positive investor perception.
However, IBM’s growth is dented by high operating costs and stiff competition that reduce its profitability. The company faces a potent threat from Anthropic and needs to fine-tune its business model to remain competitive. With a Zacks Rank #3 (Hold), IBM appears to be treading in the middle of the road, and new investors may be better off trading with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.