Key Points

  • IBM shares fell 6.5% in premarket trading as analysts questioned how much of the third-quarter software rebound reflected delayed deals rather than underlying acceleration.
  • About $250 million of software growth came from contracts pushed from the second quarter, according to Bank of America Global Research.
  • IBM raised its annual software revenue growth outlook to 7% to 8%, but executives cautioned that the strong transaction-processing performance may not continue.
hero

 

IBM’s latest earnings update has delivered a mixed signal to investors, with stronger software performance accompanied by questions over how durable the improvement will be. Shares fell 6.5% in premarket trading Thursday as analysts assessed whether the third-quarter rebound represents genuine acceleration or primarily reflects business that was delayed from the previous quarter.

Delayed Deals Complicate the Software Rebound

About $250 million of IBM’s software growth in the third quarter came from deals that had been pushed out of the second quarter, according to Bank of America Global Research analysts. Without those delayed transactions, the improvement in software performance would have been more modest.

The distinction is important because IBM has been attempting to rebuild confidence in its software business after a difficult period. A stronger reported quarter can improve the near-term outlook, but investors typically place greater weight on whether revenue momentum can continue once temporary timing effects disappear.

IBM raised its annual software revenue growth forecast to approximately 7% to 8%, compared with its previous range of 6% to 8%. However, the company left its overall revenue growth forecast unchanged, indicating that the software upgrade has not translated into a broader revision of its growth expectations.

Mainframe-Linked Software Shows Strong but Potentially Temporary Growth

IBM’s transaction-processing business, which sells software associated with its mainframe computers, delivered particularly strong results. Revenue in the unit increased 9% in the third quarter, following a decline in the second quarter.

Chief Executive Arvind Krishna cautioned that the 9% growth rate should not be expected to continue, describing a more “normalized performance” as the company moves into next year. Bernstein analysts similarly indicated that IBM’s forecast suggests sales in the unit could decline slightly in the fourth quarter as the benefit from delayed deals fades.

The comments highlight the difference between a quarterly rebound and a sustainable change in underlying demand.

IBM Attempts to Rebuild Investor Confidence

The latest concerns come after a difficult year for IBM’s shares. The stock had already fallen about 15% through Wednesday’s close, including its steepest one-day decline in more than a century in July after Krishna said the company had “faltered” in adapting to changes in customer spending.

If Thursday’s premarket decline holds, IBM would lose more than $15 billion in market value. Yet the analyst community is not uniformly negative: at least eight brokerages have raised their price targets, according to LSEG data.

That divergence suggests that investors remain divided over whether IBM’s software portfolio can generate durable growth as customer spending priorities continue to evolve.

Software Momentum Faces a Fourth-Quarter Test

IBM’s next challenge will be demonstrating that its improved software performance extends beyond delayed transactions. Recurring demand, transaction-processing revenue and broader software growth will be important indicators of whether the third-quarter rebound represents a sustainable improvement.

Going forward, investors will closely monitor fourth-quarter sales, management’s updated expectations and evidence that software growth remains resilient after the delayed deals have been absorbed. The ability to sustain momentum without relying on timing-related benefits will be central to IBM’s efforts to restore confidence in its longer-term growth trajectory.


Comparison, examination, and analysis between investment houses

Leave your details, and an expert from our team will get back to you as soon as possible

    * This article, in whole or in part, does not contain any promise of investment returns, nor does it constitute professional advice to make investments in any particular field.

    To read more about the full disclaimer, click here
    SKN | European Corporate Earnings Outlook Improves as Energy Windfall Lifts Profit Expectations
    • orshu
    • •
    • 6 Min Read
    • •
    • ago 3 minutes

    SKN | European Corporate Earnings Outlook Improves as Energy Windfall Lifts Profit Expectations SKN | European Corporate Earnings Outlook Improves as Energy Windfall Lifts Profit Expectations

      The outlook for European corporate earnings has improved modestly as energy companies prepare to benefit from stronger third-quarter profits.

    • ago 3 minutes
    • •
    • 6 Min Read

      The outlook for European corporate earnings has improved modestly as energy companies prepare to benefit from stronger third-quarter profits.

    SKN | Tesla Shares Slip as Capex Cut Raises Questions Over Musk’s AI and Robotics Ambitions
    • Ronny Mor
    • •
    • 7 Min Read
    • •
    • ago 4 hours

    SKN | Tesla Shares Slip as Capex Cut Raises Questions Over Musk’s AI and Robotics Ambitions SKN | Tesla Shares Slip as Capex Cut Raises Questions Over Musk’s AI and Robotics Ambitions

      Tesla shares came under pressure on Thursday after the electric-vehicle maker reduced its capital spending outlook, creating fresh uncertainty

    • ago 4 hours
    • •
    • 7 Min Read

      Tesla shares came under pressure on Thursday after the electric-vehicle maker reduced its capital spending outlook, creating fresh uncertainty

    SKN | Meta Shares Slide as Investors Weigh Muse Growth Against Rising AI Costs
    • sagi habasov
    • •
    • 7 Min Read
    • •
    • ago 4 hours

    SKN | Meta Shares Slide as Investors Weigh Muse Growth Against Rising AI Costs SKN | Meta Shares Slide as Investors Weigh Muse Growth Against Rising AI Costs

      Meta Platforms is facing a more complicated investor debate as its artificial intelligence ambitions begin producing stronger signs of

    • ago 4 hours
    • •
    • 7 Min Read

      Meta Platforms is facing a more complicated investor debate as its artificial intelligence ambitions begin producing stronger signs of

    SKN | APA Group approved a A$700 million gas pipeline investment, supported by a deal with Origin Energy.
    • omer bar
    • •
    • 7 Min Read
    • •
    • ago 17 hours

    SKN | APA Group approved a A$700 million gas pipeline investment, supported by a deal with Origin Energy. SKN | APA Group approved a A$700 million gas pipeline investment, supported by a deal with Origin Energy.

    Australian energy infrastructure operator APA Group has approved a A$700 million investment in the Bulloo Interlink Pipeline, advancing a broader

    • ago 17 hours
    • •
    • 7 Min Read

    Australian energy infrastructure operator APA Group has approved a A$700 million investment in the Bulloo Interlink Pipeline, advancing a broader