What Is Next For IBM Stock?
Over the past twelve months, International Business Machines (IBM) stock lost 15.2%, trailing the 16.2% return for the S&P 500. Executives warned on a July 22 earnings call that fiscal Q2 2026 fell short of expectations. During that presentation, however, management expressed complete conviction that one specific unit will achieve double-digit long-term growth. Which part of IBM is that, and is it showing any sign of faster growth yet?
IBM Is Betting On Software Growing At Double Digits
That unit is software. Management noted on the call that it maintains “complete conviction in the double-digit long-term software growth.”
Executives also highlighted annual recurring revenue, or ARR, of $24.6 billion at the end of the second quarter. This marked an 8% increase from a year earlier.
This baseline proved resilient during a weak quarter. Many clients redirected spending toward servers, storage and memory. Still, subscription and consumption-based software remained largely unaffected because clients generally purchase that software out of operating budgets. Total software revenue, however, expanded by only 5% in the quarter. Organic growth, a metric that excludes acquired businesses, stayed flat. Subscriptions are expanding, but software as a whole is slowing. It grew 10.6% in 2025, including acquired businesses, and only 5% in the second quarter.
How Big Is Software Inside IBM?
Generating $30.0 billion of revenue in 2025, software stands as IBM’s largest business. The division outpaces both Consulting and Infrastructure. Reported growth for that year, which includes acquired businesses, reached 10.6%. That followed an 8.3% expansion in 2024.
At this scale, the division’s targets materially impact the broader corporation. A year of 10% growth would generate about $3 billion in additional software sales, compared against the $69.1 billion of revenue IBM posted over its last twelve months.
Investors appear to be pricing in very little of this expansion. IBM trades at 20.4 times earnings, trailing the 22.9 multiple for the S&P 500. A valuation below the broader market suggests expectations that IBM will grow more slowly than the average company, not faster.
What Has To Go Right For IBM’s Software?
Delayed contracts will need to close. Management reported that tens of large deals missed their expected timelines, a delay that accounted for the majority of the second-quarter shortfall. Roughly a third of those transactions had finalized by the July 22 call. The central question raised on the call was whether this demand was deferred or destroyed.
Looking ahead, executives revised the 2026 software forecast to a range of 6% to 8%. They noted the low end of this projection assumes recent spending dynamics will persist through the second half. This range remains a forecast, and it sits below the double-digit target.
When the company reports earnings on or around October 21, 2026, third-quarter software growth compared against that full-year range will be the key number to watch.
Does This Mean You Should Act On IBM?
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