IBM shares experienced a decline late Wednesday despite the company reporting third-quarter results that exceeded market expectations. The tech giant based in Armonk, New York, announced an adjusted earning of $2.65 per share for the September-ending quarter, marking a 15% increase from the same quarter last year and surpassing analysts’ forecasts of $2.45 per share. Additionally, IBM’s sales grew by 9% year-over-year, reaching $16.3 billion, compared to the $16.1 billion anticipated by analysts.
In terms of revenue segment performance, software revenue saw a 10% rise, amounting to $7.21 billion, which aligned closely with expectations from analysts. IBM’s CEO, Arvind Krishna, highlighted the company’s robust position in the artificial intelligence sector, stating, “Our AI book of business now stands at more than $9.5 billion.” This strength prompted IBM to raise its full-year revenue growth outlook to over 5%, modifying its previous guidance that indicated growth of at least 5%. The company also increased its free cash flow projection from $13.5 billion to approximately $14 billion for the entire year.
Despite the strong earnings report and positive guidance, IBM’s stock fell nearly 5% to $274 in after-hours trading. Prior to the earnings announcement, the stock had gained 2.2% during regular trading, contributing to a 33% rise in shares year-to-date. Investors have generally responded favorably to IBM’s efforts to leverage its AI expertise for growth, particularly in its software division. However, the stock faced a downturn in July after the company reported slower-than-expected sales growth in its software segment.
Shares had previously surged past a buy point of 296.16 on October 7, reaching an all-time high of 301.04, following the news of a partnership with Anthropic aimed at advancing the use of AI agents in businesses. Since then, the stock has retraced, finding support just above its 21-day moving average.
As a component of the Dow Jones Industrial Average, IBM has significantly outperformed the S&P 500 index. However, its Relative Strength rating has dipped to 71 out of a possible 99, compared to a rating of 85 three months earlier. Ahead of the earnings release, IBM held an IBD Composite Rating of 84 out of 99, which consolidates five distinct proprietary ratings into one metric. The most successful growth stocks typically achieve a Composite Rating of 90 or higher.
