What’s Next For IBM Stock?

International Business Machines stock (NYSE: IBM) plummeted 7% in extended trading on October 22, 2025, despite delivering a convincing earnings beat. This is due to investor concerns about decelerating growth in the company’s critical software segment, overshadowing an otherwise strong quarterly performance. IBM reported adjusted earnings per share of $2.65, significantly beating the $2.45 consensus estimate, while revenue reached $16.33 billion versus expectations of $16.09 billion. In this analysis, we examine IBM’s Q3 results and evaluate whether the stock’s decline presents an opportunity or reflects deeper concerns about growth sustainability.​

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Strong Beat Masked by Software Growth Concerns

IBM delivered revenue growth of 9% year-over-year to $16.33 billion, marking its strongest quarterly performance in recent years. Adjusted earnings per share of $2.65 represented a 15% increase from the prior year. What drove this outperformance? The company benefited from robust demand for its latest AI-optimized mainframe systems and continued momentum in its automation software, which grew 24%. However, the software division’s 10% growth to $7.21 billion merely met consensus expectations rather than exceeding them, raising questions about the sustainability of IBM’s AI-driven transformation. More troubling for investors, Red Hat’s constant-currency revenue growth decelerated to 12% from 14% in the previous quarter, prompting analyst concerns about this cornerstone of IBM’s software strategy.​

Limited Upside Potential Despite Recent Decline

Is IBM’s valuation attractive after the post-earnings selloff? With the stock currently trading around $270 and analyst price targets averaging $286, there appears to be minimal upside potential even after the recent 7% decline. The stock has already appreciated approximately 30% year-to-date, reflecting investor optimism about IBM’s AI positioning. However, at a trailing P/E ratio of around 45 times, IBM trades at a slightly high multiple relative to its growth prospects. The challenge lies in the fact that much of the AI-driven growth story may already be reflected in the current valuation, leaving little margin for error if software growth continues to disappoint. Management’s raised guidance for full-year revenue growth exceeding 5% and free cash flow of $14 billion provides some support, but these targets appear increasingly ambitious given the software segment’s deceleration.​

Historical Volatility Suggests Caution During Downturns

Could IBM face additional pressure during broader market stress? Historical data suggests IBM has demonstrated relative resilience compared to growth stocks during major market corrections. During the inflation shock of 2022, IBM stock fell 20.2% from a high of $145.21 on June 11, 2021, to $115.81 on November 26, 2021, compared to a peak-to-trough decline of 25.4% for the S&P 500. Similarly, during the COVID-19 pandemic in 2020, IBM stock dropped 39.0% from a high of $149.08 on February 12, 2020, to $90.97 on March 23, 2020, versus a 33.9% decline for the S&P 500. See – How Low Can IBM Stock Really Go – While these declines were substantial, IBM’s performance during market stress has generally been more defensive than high-growth technology stocks, reflecting its mature business model and dividend yield.

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The Bottom Line

Does IBM’s current situation warrant investor confidence? The company’s ability to exceed earnings expectations while raising full-year guidance demonstrates operational execution strength, particularly in capitalizing on AI demand across its mainframe and automation businesses. With its AI business portfolio now exceeding $9.5 billion and strong free cash flow generation, IBM appears well-positioned to navigate the current technology transition.

However, the deceleration in Red Hat growth and the software division’s inability to exceed expectations raises questions about the sustainability of IBM’s transformation narrative. Given the limited upside potential based on current analyst targets and the stock’s already substantial year-to-date gains, investors may want to await clearer evidence of software acceleration before adding positions, despite the recent decline creating a more attractive entry point.

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