What Is Going On With IBM Stock?
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International Business Machines (IBM) grew its sales and profit over the past year, yet its stock trades at 20.7 times earnings, below the 21.8 for the median S&P 500 company. The shares lost 17.5%, dividends included, over the twelve months to November 10, 2026, while the S&P 500 returned 13.1%. So is IBM a sound business marked down, or a business fairly priced for slowing growth?
IBM Now Costs Less For Each Dollar It Earns
On the past year’s results, IBM looks like the sound business. Investors paid 33.3 times IBM’s twelve-month earnings at the end of September 2025, but only 18.6 times at the end of September 2026. At the November 10 price, the same twelve-month earnings put IBM at 20.7 times. Over the same stretch, twelve-month net income rose to $11.2 billion from $7.91 billion, and operating margin widened to 18.3% from 17.7%.
The business generating that profit is still growing. IBM’s largest segment, Software, brought in $30.0 billion in fiscal 2025. This was up 10.6% from fiscal 2024. IBM also collects the cash. Its free cash flow over the twelve months to September 2026 was $14.0 billion, equal to 6.1% of its market value.
Half Of IBM’s Yearly Profit Came In One Quarter
The catch is in the quarters behind those twelve months. Half of IBM’s net income over that stretch came in fiscal Q4 2025. That quarter produced $5.6 billion in net income, which was even above its $4.85 billion of operating income. Over the three quarters since, net income ranged from $1.22 billion to $2.19 billion a quarter. The latest period, fiscal Q3 2026, was the top of that range and still up on the $1.74 billion of a year earlier.
Sales show the same split between the year and the quarter. IBM’s sales grew 6.8% over the twelve months to September 2026, above the 4.5% average of the three twelve-month periods to that date, this one included. In fiscal Q3 2026 alone, sales grew 4.7%, down from 9.1% growth in the same quarter a year earlier.
Software revenue grew 9% in fiscal Q3 2026, by management’s count, but management expects some of that strength to fade. On the October 21, 2026 call, it said about a quarter of the pickup in software growth came from deals that slipped from the second quarter and about three-quarters from new business. It also said it does not expect double-digit growth in transaction processing, the software that runs on its mainframes, to keep going. So IBM’s discount to the median company is measured on a twelve-month profit lifted by one quarter.
What IBM Has Promised For 2026
Management is cutting costs to protect profit. On the same call, it listed reducing third-party spend and using AI across the company, and said it still expects 100 basis points of operating pre-tax margin expansion for 2026, on its own adjusted measure. Reported free cash flow rose to $3.54 billion in fiscal Q3 2026, from $2.67 billion a year earlier. Management raised its goal for 2026 to more than $1 billion of free cash flow growth, on its own measure rather than the reported one, while keeping its forecast for 2026 revenue growth at 4% to 5% at constant currency.
A buyer at $244.53 a share is betting that IBM is a sound business whose shares have been marked down, and that its profit holds up once fiscal Q4 2025 is no longer part of the twelve months. When IBM reports in January 2027, its fiscal Q4 2026 net income, against the year-earlier quarter, is the number to watch.
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