Are You Overpaying For IBM Stock Versus Its Rivals?

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International Business Machines (IBM) trades at 21.4 times earnings, the second-highest valuation among the five companies in a peer group that also includes Microsoft, Amazon, Alphabet and Accenture. Over its latest four quarters, however, IBM’s revenue growth ranks fourth out of the five. Its shares also returned less than any of the others over the past year. So how much more are you paying for IBM’s profit than for a rival’s?

How Much More Does IBM Stock Cost Than Accenture?

Investors pay about 20% more for each dollar of IBM’s profit than for Accenture’s, and they receive almost the same growth. Both companies operate in the same industry of IT consulting and other services. IBM expanded its revenue 6.8% over its latest four quarters, compared with 6.5% for Accenture. Still, the market values IBM stock at 21.4 times earnings, while Accenture trades at 17.9.

IBM does retain more of each sale, posting an operating margin of 18.3% against 15.8% for Accenture. The rest of the peer group makes that premium look larger. Alphabet operates in a different industry and grew revenue 20.1%, about three times as fast as IBM. Investors pay only 15.9 times earnings for Alphabet’s shares, marking the lowest valuation in the group. That P/E is low partly because Alphabet’s $244 billion of net income sits above its $148 billion of operating income. Microsoft is the only company priced above IBM, and it also grew faster.

What Are You Paying For In IBM Stock?

Buyers are paying for a company whose biggest business is software, not consulting. IBM’s software business generated $30.0 billion of revenue in fiscal 2025, up 10.6% from a year earlier. Its second-largest business, consulting, grew 1.8% to $21.1 billion. IBM’s biggest business outpaced the company as a whole, and that dynamic may be what investors are paying extra for.

A large portion of IBM’s revenue repeats each year. During the company’s October 21, 2026 call, management said IBM’s annual recurring revenue base grew 8% to $24.9 billion. Software growth also accelerated to 9% in fiscal Q3 2026. Mainframe sales provide additional growth, though not the repeating kind: IBM’s latest z17 mainframe has brought more than $1 billion of extra revenue over six quarters, compared with earlier models.

IBM’s Own Forecast For 2026

Management maintained its forecast for 2026 revenue growth at 4% to 5% at constant currency, keeping the same range it gave in July. The company expects software to grow about 7% to 8% for the year.

Part of the third quarter’s speed-up will not repeat. Management said about a quarter of the software acceleration came from large deals that slipped from the second quarter. The company also said it does not expect the double-digit growth in its mainframe transaction software to keep going.

The stock price appears to assume that IBM’s software will keep growing faster than its consulting work, enough to set IBM apart from a rival that grows at the same pace. So far, IBM’s software is growing faster, but the company as a whole still expands at about Accenture’s pace. Software growth for the full year remains the metric to watch when IBM reports, expected in January 2027.

Is Too Much Of Your Wealth Riding On One Stock?

International Business Machines is one stock among several rivals a holder could own instead. When one position grows into a large part of your wealth, a sharp fall can hurt your whole plan, and selling to spread the money out can bring a large tax bill. Our partner advisory firm offers a free strategy review of ways to protect a concentrated position and unwind it with less tax.

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