Are You Overpaying For IBM Stock Versus Its Rivals?

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International Business Machines (IBM) stock trades at 21.4 times earnings. That gives the company the second-highest valuation in a group of five companies that also includes Microsoft, Alphabet, Amazon.com and Accenture. Over each company’s latest four fiscal quarters, however, IBM ranks fourth of the five in revenue growth. So what does the extra price buy you at IBM?

What You Get For IBM’s Premium Over Accenture

Compared with Accenture, the only peer in IBM’s own industry, you pay extra at IBM for a wider margin rather than faster growth. Accenture trades at 17.9 times earnings. Over each company’s latest four fiscal quarters, IBM grew revenue 6.8% and Accenture grew 6.5%, close to a tie. IBM’s operating margin was 18.3%, against 15.8% for Accenture, so IBM keeps more of each sales dollar as profit.

On growth alone, IBM’s premium is harder to explain against the rest of the group. Alphabet grew revenue 20.1% and trades at 15.9 times earnings, but its earnings over those quarters ran far above its operating profit, which makes that multiple look cheaper than its business. Microsoft is the only peer priced above IBM, at 29.1 times, and it also grew faster, at 17.8%.

How Fast Is IBM’s Software Business Growing?

IBM’s software business is the largest part of the company. It grew 10.6% to $30.0 billion in fiscal 2025, faster than its consulting arm. Consulting, the second-largest business at IBM, grew 1.8% to $21.1 billion over the same year.

In fiscal Q3 2026, management said software revenue growth picked up to 9% at constant currency. That was four points faster than the quarter before. Within software, Red Hat grew 11%, and transaction processing, the software that runs on IBM’s mainframes, grew 10%. Management also said the z17 mainframe has generated more than $1 billion of extra revenue over six quarters compared with earlier models.

Beyond the margin, that appears to be the other thing you pay extra for: IBM’s largest business is growing faster than the company as a whole.

How Much Does IBM Expect To Grow In 2026?

On its October 21, 2026 call, management kept its forecast for 2026 revenue growth at 4% to 5%, measured at constant currency. It expects software to grow about 7% to 8% for the year. Management also raised its forecast for free cash flow, which it now expects to grow by more than $1 billion in 2026.

Management itself expects part of the third quarter’s software strength to fade. About a quarter of the pickup in software growth came from large deals that slipped from the second quarter, management said. It also said it does not expect double-digit growth in transaction processing to keep going, and expects more normal growth going into 2027.

IBM’s price appears to assume that software keeps growing faster than the company as a whole, long enough for IBM’s growth to start matching what you pay. The fiscal Q3 2026 results support that so far, with the caveats management gave on that call. When IBM reports in January 2027, software revenue growth against management’s full-year forecast is the measure to watch.

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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