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IBM (IBM) is pulling back despite posting strong Q3 upside results, echoing the reaction seen after Q2. The company delivered its largest EPS beat since 2Q24, with revenue up 9.1% yr/yr (+7% CC) to $16.33 bln, its strongest constant currency growth in several years. All segments accelerated sequentially.
IBM did not provide specific Q4 guidance but said it's "comfortable with consensus estimates." It slightly raised FY25 targets, now expecting revenue growth of "more than +5% CC" (vs. "at least +5% CC") and FCF of ~$14 bln (vs. >$13.5 bln).
- Software rose 10% yr/yr (+9% CC) to $7.21 bln, led by Automation (+22% CC). Red Hat slowed to +12% CC from +14% CC, though IBM cited 20% signings growth and expects a return to mid-teens growth next year.
- Consulting grew +2% CC, returning to positive territory after a flat Q2 performance.
- Infrastructure jumped 17% (+15% CC), driven by IBM Z up 59% CC, its best Q3 in nearly 20 years, fueled by the new z17 platform.
Despite the solid results, investors appear uneasy about Red Hat's deceleration, limited guidance increases, and possible FX tailwinds boosting results. With the stock up sharply in recent months, profit-taking and high expectations likely contributed to the pullback.
Briefing.com Analyst Insight:
IBM's Q3 results showcased genuine operational momentum, particularly in Infrastructure and Automation, underscoring the company's ongoing reinvention as a hybrid cloud and AI player. However, investors are rightly cautious about Red Hat's slowdown — a key pillar of IBM's long-term AI growth story. While management's commentary on future signings for Red Hat is reassuring, the market may want to see clear evidence of reacceleration before re-rating the stock. The company's "comfortable with consensus" language and modest guidance lift also temper enthusiasm. Overall, IBM remains a solid execution story with improving fundamentals, but after a strong run and amid uncertainty around Red Hat's trajectory, investors may prefer to wait for a better entry point.
