IBM is showing stronger software execution, cash generation and profitability, but its stock already trades above its longer-term valuation norm, making the setup more demanding for new buyers. Software revenue rose 9% year over year at constant currency in Q3 2026, with Red Hat up 11%, Data up 20% and annual recurring revenue up 8% to $24.9 billion, and management now expects 2026 Software revenue growth of 7%-8%. IBM generated $7.8 billion of free cash flow in the first nine months of 2026 and returned $4.8 billion to shareholders through dividends, yet Consulting revenue grew only 2% at constant currency. Generative AI made up about 30% of Consulting revenue and 35% of Consulting backlog, and the trailing 12-month book-to-bill ratio stayed above 1.0, but converting that backlog into profit remains the key test. Competitive cloud growth from Microsoft and Oracle, along with elevated debt, keeps the case selective.
Summary written by Upside AI from the original article. Read the source for full details.
Read the original on Yahoo Finance ↗
Keywords
IBMsoftwarevaluationcloud computing
Open a keyword to see other news on the same topic.
Related news
- IBM (IBM) Introduces Llm D 1.0 For Enterprise AI Inference
International Business Machines and partners Red Hat, Google Cloud, CoreWeave and NVIDIA have introduced llm-d 1.0, an open source inference platform for large language models. The project is governed by the Cloud Native Computing Foundation and is designed for scalable, cost-focused LLM inference in enterprise environments across industries. The article says the launch fits IBM's existing focus on software and hybrid cloud, but for it to matter financially, investors would need to see llm-d reflected in concrete metrics such as AI-related annual recurring revenue.
- IBM Is Up 11.1% in Three Months. Can Its Momentum Keep Building Now?
IBM shares have gained 11.1% over the past three months as third-quarter results showed faster Software growth, better transaction execution and wider operating margins. Revenue growth accelerated to 6% at constant currency, operating earnings per share rose 11% year over year, and operating pretax margin expanded 70 basis points. Software revenue grew 9%, with Red Hat up 11%, Data up 20% and annual recurring revenue up 8% to $24.9 billion, while Consulting revenue rose only 2% and generative AI made up about 35% of the Consulting backlog. Still, uneven enterprise spending and mainframe cycles remain risks, and at 19.3X forward earnings the stock trades above its five-year median of 17.3X and close to the sector's 19.8X and the S&P 500's 19.5X, leaving less room for setbacks.
- Has IBM Stock Become A Different Bet?
IBM trades at 19.9 times earnings, compared with 21.9 for the S&P 500. On its fiscal Q2 2026 call on July 22, 2026, the company emphasized recurring software revenue, noting that about 80% of its annual software revenue is recurring, instead of the cumulative generative AI book of business it highlighted a year earlier, which had passed $7.5 billion. Software is IBM’s largest division, with $30.0 billion in fiscal 2025 revenue, or 44% of the total, growing 10.6%, and annual recurring revenue reached $24.6 billion, up 8%. However, software missed expectations in fiscal Q2 2026: revenue grew 5% but organic growth was flat, as tens of large deals did not close on time. Leadership then cut its 2026 software growth forecast to 6% to 8%.
- Is Cloudflare (NET) Worth It When Most of Its Users Pay Nothing?
Cloudflare (NYSE:NET) closed at $297.58 on October 19 and has returned 45.3% over six months. Its free tier gives the company a huge user base, and paying customers largely come from that pool, with revenue up 35.90% last quarter. However, the company still reports an operating margin of -7.60% and debt at 217.86% of equity, despite positive cash flow. At 178.57 times analysts' next-year estimates, the article argues the business is admirable but the stock is hard to justify at this level, and suggests watching the paid customer count rather than revenue.
- Oracle (ORCL): Can Rival Clouds Become Its Best Database Sales Channel?
Oracle (NYSE:ORCL) could sell more database services even when customers keep applications on rival clouds such as AWS, easing a migration barrier for enterprise AI projects. Multicloud database revenue rose 353% and customers grew 180% in fiscal 2027's first quarter. The stock trades at 18x forward P/E versus 23x trailing, and management's $8.10 EPS guidance implies about 19% growth over $6.83 excluding prior-year investment gains. Risks include a 3% software revenue decline, negative $5.4 billion free cash flow in the first quarter, $125.3 billion of notes payable against $37.1 billion of cash and securities, and a $20 billion stock issuance that dilutes shareholders. The article concludes the valuation looks reasonable only if database growth produces profitable cash returns.
- Palantir Wins Knox Federal Partnership, Gains 4%
Palantir shares rose 4% after Knox Systems announced a partnership that lets other companies' commercial software reach federal agencies through Palantir's FedRAMP and IL5 accreditations. Knox, a private company running a managed federal cloud, says it can secure FedRAMP authorization for software makers in 90 days or less, and it already hosts more than 100 AI and enterprise applications. Neither company disclosed financial terms. Analysts already expect Palantir's revenue to rise from $4.48 billion in 2025 to $8.22 billion in 2026, and its U.S. government revenue grew 90% year over year to $809 million in Q2 2026. At Friday's close the stock traded at 98x forward earnings, a touch below its five-year average of 103x; the next test is the third-quarter report, guided to $2.16 billion to $2.164 billion in revenue.
Related markets
Latest news
- OpenAI nears up to $30 billion funding round at $1.25 trillion valuation led by UAE investors
OpenAI is nearing a funding round of up to $30 billion at a $1.25 trillion valuation, led by UAE investors alongside Coatue, with that valuation excluding the new capital. The company aims to get signatures by the end of next week, though the final size is still being determined. The raise is positioned as an “opportunistic” bridge ahead of a potential IPO, which CFO Sarah Friar has told employees will likely come in 2027. OpenAI is also negotiating a commercial deal that would secure more computing capacity from the UAE. The move comes amid choppy tech markets, with jitters around CoreWeave and concerns about financing as interest rates rise, while Anthropic's expected IPO will test investor appetite. OpenAI has filed confidentially to go public.
- Here's what is spooking investors as Meta stock stumbles
RBC Capital Markets analyst Brad Erickson says Meta shares are under pressure after earnings, with the language in the company's filing unsettling investors. He explains that Meta is issuing non-voting stock to fund billions in AI spending while preserving CEO Mark Zuckerberg's voting control. Erickson said the dilution level cited, nearly 800 billion, is probably well above the actual investment, and that the CFO described that language as boilerplate. He also noted the move lets Zuckerberg keep control and stay in California while a tax situation is being worked out.
- A lesson from poker tells us not to fold on Meta after its earnings sell-off. Here’s why
Meta's strong quarterly results were overshadowed by concerns over AI spending, sending shares down 7% on Thursday. Bears point to dilution risk, as Meta plans new non-voting Class C shares to fund AI infrastructure and free cash flow turned negative in the quarter. A New Mexico judge also ordered Meta to pay a $25 billion penalty over the Cambridge Analytica scandal, which the company plans to appeal, and Meta booked a $9.89 billion legal settlement charge in the quarter. Bulls argue the core business remains strong, with the new Muse app off to a strong start, and CFO Susan Li said in-house content models are outperforming prior versions in offline tests.
- Resideo Announces Expected Q1 Software Update to Honeywell Home Smart Thermostats for Compatibility with Apple HomeView
Resideo plans to release a software update in the first quarter of 2027 that will let its existing Honeywell Home ElitePRO, X7S and X8S smart thermostats support the new Adaptive Temperature Control and Clean Energy Guidance features tied to Apple's HomeView offerings. Homeowners can get these features without replacing devices or paying for extra professional installation. The thermostats already work with Apple Home, Google Home, Amazon Alexa and other ecosystems and are Matter certified. Resideo says it works with more than 100,000 professionals worldwide, who bring its products into more than 15 million installations annually.
- Why Nokia Sank today
Nokia shares fell 15.4% on Thursday, as of mid-afternoon, in a sector-wide sell-off of AI-related stocks, even though the company beat earnings expectations. Third-quarter revenue rose 9.7% to 5.15 billion euros, adjusted EPS rose 50% to $0.09, and operating margin expanded 220 basis points. AI and cloud customer revenue jumped 123% and order intake for that segment rose 118%, while mobile networks grew only 5%. Nokia reiterated but did not raise its full-year 2026 guidance, and the article says high expectations after the stock's rally this year, along with fears about the sustainability of AI spending, weighed on shares.
- Google Is Paying SpaceX $11 Billion a Year for Compute. Here's the Concentration Risk Nobody Is Pricing In.
Google has started paying SpaceX $920 million per month, or $11 billion per year, to lease xAI's cloud infrastructure through 2029, rather than building more data centers to fill its shortage of Nvidia GPUs. According to Synergy Research Group, Google held 15% of the global cloud infrastructure market in the second quarter of 2026, placing third behind AWS (28%) and Microsoft Azure (20%), while Google Cloud revenue rose from $19.2 billion in 2021 to $58.7 billion in 2025. The deal gives Google access to a cluster of roughly 110,000 GPUs, and Alphabet owns a 4%–5% stake in SpaceX. The author warns the arrangement adds concentration risk: Google is effectively funding xAI's growth into a cloud competitor, it reinforces Nvidia's dominance, and the cluster sits at xAI's centralized facilities, including Colossus in Tennessee, where power failures or disruptions could affect many tenants.
Get the briefing on Telegram or Zalo
Join the Upside Telegram channel or Zalo group for the Vietnam stocks and gold briefing at 8:00 and 19:00 (Vietnam time) on trading days, plus a weekly wrap on Saturday morning.