IBM Q3 Earnings Preview: AI Growth, Software Focus With Stock at Record Highs

With a 70% rally over the past 12 months, IBM (IBM) shares are trading at record highs ahead of a crucial Q3 earnings report scheduled for Wednesday evening.

The century-old tech giant, known as “Big Blue,” has been on an upward trend since late last year, fueled by enthusiasm for AI advancements and improvements in both revenue growth and free cash flow.

On Monday, IBM released the latest version of its Granite open-source AI models, aimed at helping businesses develop generative AI tools. Meanwhile, several Wall Street analysts have raised their estimates for IBM stock ahead of the Q3 earnings release.

IBM Q3 Financial Figures

According to FactSet, analysts expect IBM to report adjusted earnings of $2.22 per share for the quarter ending in September, a 24% increase year-over-year. Analysts also anticipate a 2.2% rise in sales, reaching $15.08 billion.

In a recent client note, BofA Securities analyst Wamsi Mohan reiterated a “buy” rating for IBM, raising his price target from $209 to $250.

Mohan attributed IBM’s strong performance to growth in its software business and potential gains from mainframe upgrades anticipated in 2025.

“Generative AI (with $2 billion in business inception to date) represents a significant opportunity for both consulting (around 75%) and software (around 25%),” Mohan noted. “Headwinds include weaker consulting, given cutbacks in discretionary projects and a generally soft macro environment.”

Mohan expects IBM’s earnings and revenue to meet market expectations.

What Could Drive IBM’s Stock Higher?

Meanwhile, Jefferies analysts hold a “neutral” rating for IBM stock. Jefferies analyst Brent Thill, however, raised his price target from $200 to $245 in a client note on Monday.

“With IBM rallying into the earnings release, expectations will be higher, especially regarding software and AI narratives,” Thill wrote. “IBM remains a slow-moving entity, weighed down by consulting and infrastructure segments.”

Thill added that for the stock to continue rising, IBM’s software division, led by Red Hat cloud services, must keep outperforming. Consulting revenues also need to rebound, and AI’s contribution to revenue needs to accelerate.

Despite the recent rally, analysts remain mixed about IBM’s stock. According to FactSet, out of 22 analysts covering IBM, 10 rate it as a “buy” or equivalent, seven are “neutral,” and five rate it as a “sell.”

IBM Stock: Extended Beyond Buy Point

Meanwhile, IBM’s stock has moved well beyond the cup-with-handle buy point of $196.26 identified by MarketSurge. Shares broke above this level on August 21 and have climbed steadily in the weeks since.

In early September, IBM achieved its first record close in over a decade. As of Monday morning, the tech giant’s market cap stood at $213 billion.

However, early trading on Monday suggests a third consecutive day of declines. Shares are approaching IBM's 21-day moving average, potentially testing investor support at current levels.

According to IBD Stock Checkup, IBM’s Relative Strength Rating is 90 (out of a possible 99), indicating that the stock has outperformed 90% of the market over the past 12 months.