Why Every IBM Investor Is Looking At This One Number

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The number International Business Machines (IBM) shareholders are watching comes from one business: its software. You may think of IBM as a consulting and hardware company, but its growth question lies in software. Yet over the year to November 3, 2026, IBM stock lost 16.5%, while the S&P 500 returned 11.9%. IBM’s software growth sped up in fiscal Q3 2026 anyway, and that is the contradiction. So how fast is IBM’s software growing now, and how much of it is new?

IBM’s Software Speed-Up Came Mostly From New Business

Measured at constant currency, IBM’s software revenue grew 9% in fiscal Q3 2026. That was four points faster than in Q2, management said on the October 21 call. Its high-value annual recurring revenue base, software sales that repeat each year, grew 8% to $24.9 billion.

Some of a jump like that can be borrowed from the quarter before, and IBM did close about two-thirds of the large deals that slipped out of Q2. Management, however, put those deals at about a quarter of the speed-up and called about three-quarters of it net new business. Based on management’s own split, most of the gain was not catch-up.

Can IBM’s Software Growth Hold As Mainframe Software Cools?

Management said not all of that growth will hold. The company does not expect transaction processing, the software that runs on its mainframes, to keep growing at double digits, and said it could perhaps moderate from Q3 into Q4. So more of the growth has to come from the rest of IBM’s software, such as Red Hat, and so far Red Hat is holding up.

That matters because software license deals have already swung IBM’s software growth once. In fiscal Q2 2026, management said, a double-digit fall in transactional software sales, which make up about a fifth of its software business, cut software growth by 4 to 5 points. In Q3, those sales rose by double digits, mostly in transaction processing, which grew 10%.

Red Hat looks steadier. Its revenue grew 11% in fiscal Q3 2026, the same rate as the quarter before, and its bookings growth sped up to the high teens. OpenShift, a Red Hat product, is now a $2.4 billion annual recurring revenue business, growing more than 30%.

What Would Show IBM’s Software Growth Fading?

From the 9% alone, you cannot tell how much of IBM’s software growth will repeat. Part of it came from deals that slipped out of Q2, and the double-digit rise in mainframe software is the part management expects to fade. If the new business does not repeat, the speed-up was a one-quarter jump. If Red Hat does not grow into the gap, IBM’s software growth again swings with mainframe deals.

Management has said little about 2027 so far. When Red Hat’s bookings and 2027 came up on the October call, management declined to comment on 2027 growth. Later in the call, it gave only an early view that growth would speed back up to its model. It did say bookings growth of this kind usually turns into good revenue growth.

So far, management credits most of IBM’s software speed-up to new business, and Red Hat’s bookings are growing faster than they were. Since management expects mainframe software to cool, Red Hat’s ability to grow into the gap is the open question. IBM’s software growth, along with Red Hat’s part in it, is the number to watch when IBM reports in January 2027. Management has said it will put figures on 2027 then.

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