International Business Machines Corporation IBM is benefiting from healthy traction in the Software segment. In the third quarter, the company reported revenues of $7.21 billion, up from $6.52 billion in the year-ago quarter. Net income improved to $2.37 billion from $1.97 billion a year ago, with margins of 32.9% and 30%, respectively.
The growth was driven by strength in Automation, which grew 22% during the quarter. With the growing digital transformation and AI integration initiative across sectors, enterprises are looking to optimize operations, automate infrastructure and workflows. IBM’s Automation portfolio offers end-to-end solutions that match all the requirements to ensure cost efficiency and enhance resiliency. Per our estimate, IBM is expected to generate $7.6 billion in revenues, indicating 16.3% year-over-year growth.
Hybrid Cloud remains a major growth driver for the company. In the third quarter, it reported 12% year-over-year growth. All three of IBM’s major subscription offerings gained market share. IBM’s hybrid approach allows users to choose the best option for their distinct requirements.
Demand for watsonx and Red Hat AI remains strong. Its Agentic platform, watsonx Orchestrate, is also gaining solid market traction. Per our estimate, the company is expected to generate $7.67 billion in revenues from the Hybrid Cloud vertical, indicating growth of 18.2% year over year.
The company is set to acquire Confluent, a leading data infrastructure company that specializes in real-time data streaming. The combined capabilities of both entities will facilitate end-to-end integration of applications, analytics, data systems and AI agents, augmenting resilience in hybrid cloud environments.
How Are Competitors Faring?
IBM faces competition from Microsoft Corporation MSFT and Oracle Corporation ORCL. In the November quarter, Oracle reported cloud revenues of $7.97 billion, up 34% year over year, while software revenues were $5.87 billion, down 3% year over year. The company has secured multiple customer wins in the recent quarter. Milwaukee Tool and Qatar Airways have recently opted to deploy Oracle Cloud.
During the quarter, Microsoft’s Productivity & Business Processes segment reported revenues of $33.02 billion, up 17% year over year. The growth was driven by healthy demand for M365 commercial products and cloud services and M365 consumer products and cloud services. Microsoft’s high-margin software and cloud services produce industry-leading profitability metrics, with operating margins consistently above 40%.
IBM’s Price Performance, Valuation & Estimates
IBM shares have gained 35.6% over the past year compared with the industry’s growth of 73%.
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From a valuation standpoint, IBM trades at a forward price-to-earnings ratio of 25.67, higher than the industry.
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Earnings estimates for 2025 have increased 2.43% to $11.39 over the past 60 days, while the same for 2026 have also increased 2.34% to $12.23.
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IBM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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