Can This Number Push IBM Stock Higher?
The number worth watching at International Business Machines (IBM) is its annual recurring revenue. It kept growing through a weak quarter. You may expect the story here to be the missed second quarter or the falling stock. It is not. So how big is this recurring revenue business, and how fast is it growing?
How Big Is IBM’s Recurring Revenue Business, And How Fast Is It Growing?
IBM’s software annual recurring revenue stood at $24.6 billion, management said on the fiscal Q2 2026 call. That was up 8% from a year earlier.
Software as a whole makes up nearly 45% of total revenue, management said. Software revenue grew 5% in the second quarter, with flat organic growth.
Recurring revenue kept rising through that quarter. So why has the stock not followed?
Why Has IBM Stock Fallen While Its Annual Recurring Revenue Grew?
IBM stock lost about 10% over the past year, counting dividends. The S&P 500 gained about 19% over the same time. The most recent worry is the second quarter. Management said results fell short of expectations. Clients moved spending to servers, storage and memory, and tens of large deals did not close on time.
Revenue from transaction processing software fell 9% in that quarter. Annual recurring revenue answers part of this worry, because it kept growing through the same period. Management also said about one-third of the delayed deals closed in the first three weeks of the third quarter. Management read that as delay, not lost demand.
The recurring business does not answer all of it. Management now expects software to grow at least 6% in 2026. The forecast tops out at 8%. Management said the low end assumes the recent spending pattern lasts through the second half.
What Would Show IBM’s Annual Recurring Revenue Is Slowing?
The clearest sign would be weaker annual recurring revenue growth in IBM’s fiscal Q3 2026 report. That report is the first since the second-quarter call. Growth well below 8% would suggest the spending shift has reached recurring revenue, not just the delayed large deals.
The same report will show two more things. One is whether more of the delayed deals closed. The other is whether management keeps that forecast.
If annual recurring revenue keeps growing near 8% and the delayed deals keep closing, the second quarter looks like a pause. If recurring revenue growth slows, the weakness has spread beyond one quarter’s deals.
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