What Could Lift IBM Stock?
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International Business Machines (IBM) stock returned 17.4% from September 30 to October 29, 2026, against 1.0% for the S&P 500. Even with that gain, holders are down 15.2% over the year to October 29. The company’s profits also fluctuate, with a net margin of 28.4% in the fourth quarter of 2025 and 12.8% in the third quarter of 2026. So what would have to go right in IBM’s business for the shares to keep climbing?
All Of IBM’s Upside Comes From Selling More
IBM would have to keep selling more, because higher revenue accounts for all of the gain in a Trefis scenario built on the company’s own figures. This scenario is arithmetic, not a forecast, and it assumes revenue growth of 8.5% a year for three years. That is 1.25 times the pace IBM delivered over the twelve months to September 2026. Under these assumptions, IBM shares would be worth about 18.8% more in three years, before dividends.
The table compares IBM today with the scenario three years on.
| Today | In three years (scenario) | |
|---|---|---|
| Revenue | $69.9 billion | $89.3 billion |
| Net margin | 16.0% | 14.9% |
| Earnings | $11.2 billion | $13.3 billion |
| P/E | 21.8 | 21.8 |
| Share price | $258.28 | $306.94 |
Revenue growth delivers the whole gain and then some, because the lower net margin in the scenario takes part of it back and the P/E stays where it is today. IBM drew most of its recent growth from software, its largest segment. In fiscal 2025, software provided $2.9 billion of the $4.7 billion increase in IBM’s overall revenue.
When one segment supplies most of the growth, the company’s pace rides on it. A recent example: 98% of Tesla’s deliveries last quarter were a Model 3 or Model Y, and its deliveries fell two years in a row. Read Trefis Big Story: How Tesla Blundered.
Where Is IBM’s Sales Growth Coming From Now?
Management said on the October 21 call that software still leads, with software revenue up 9% at constant currency in the third quarter of 2026. The finance chief added that the 9% included over four points of organic growth, with the rest from acquired businesses such as Confluent. Within the software business, Red Hat grew 11%, and OpenShift reached $2.4 billion of annual recurring revenue. In infrastructure, management said the z17 mainframe brought in more than $1 billion of extra revenue over six quarters compared with earlier programs.
IBM’s total sales are not growing at the scenario’s pace yet. Reported revenue rose 4.7% in the third quarter of 2026 from a year earlier. Management’s guide of 4% to 5% for 2026 covers a year already reported through September, so most of that forecast consists of results already in. Management also said it does not expect the double-digit growth in transaction processing, its mainframe software, to keep going.
How Does IBM’s Upside Change In Different Scenarios?
In the middle two rows below, one assumption changes while the other two remain constant. The last row keeps the scenario’s assumptions and runs them for longer.
| If instead | Upside |
|---|---|
| Nothing changes (the scenario) | 18.8% |
| Revenue growth of 6.5% a year instead of 8.5% | 12.4% |
| Net margin of 12.2% in year three instead of 14.9% | -2.2% |
| 5 years at the same assumptions instead of 3 | 40.0% |
IBM is starting from a high margin. Its twelve-month net margin includes the strong fourth quarter of 2025, sitting above the average of the previous three years and close to its ten-year high for a twelve-month net margin, 16.3%. The year-three margin in the scenario is 70% of today’s margin plus 30% of that historical average. The scenario holds the share count at today’s level. However, IBM’s diluted share count rose 3.2% over the three years to the third quarter of 2026. With a rising count, each share gets less than the scenario shows.
Owning IBM for three years would return nothing, before dividends, if revenue grew 2.5% a year, compared with the 6.8% pace IBM delivered over the twelve months to September 2026. It would also return nothing if the net margin in year three were 12.5%, against 16.0% over the past twelve months. The P/E could fall to 18.4, from 21.8 today, before the gain was gone.
The number to watch is IBM’s revenue growth from a year earlier in its fourth-quarter report, expected in January 2027. Management said on the October 21 call that it would put numbers on its early view of 2027 then.
Sitting On A Big Gain In International Business Machines?
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