IBM (IBM) is scheduled to report their Q4 ’25 financial results after the closing bell on Wednesday, July 28th, 2026.
Microsoft (MSFT), Tesla (TSLA) and Meta (META) are also scheduled to report Wednesday night, January 28th after the market closes so there will be enough tech reports to satisfy everyone.
The reason for the interest in IBM from this blog, is that since the stock peaked in mid-April, 2013 near $215 per share, IBM has returned 7.11% versus the SP 500’s 14.45% return the last 12 years. A lot of the IBM return has come since July 1 ’24 when IBM was still trading under $170. The former mainframe giant didn’t take out that $215 high until the 4th quarter of 2024, and since breaking out returned +37.8% in calendar ’25 versus the SP 500’s +17.8% return.
After 12 years IBM is finally generating “alpha” for investors, and at least in terms of it’s historical tech cycle (discussed below), there should be more upside to go for the stock.
Sell-side consensus is looking for $4.32 in EPS and $19.2 billion in revenue, as well as $4.9 bl in operating income, for expected year-over-year (y-o-y) growth of 10%, 9% and 17% respectively.
For 2026, IBM consensus is expecting 5% revenue growth and 8% EPS growth for the full-year 2026.
Without burying the lede, and to make for a hopefully short and sweet earnings preview, IBM’s operating margin has been slowly expanding this decade, and also capex has been shrinking which has boosted free-cash-flow, so take a look at the following numbers:
IBM operating margin:
- 4-qtr avg: 19.9%
- 12-qtr avg: 17.6%
- 20-qtr avg: 15.8%
- 40-qtr avg: 15.7%
The big change the last 5 years has been the full integration of RedHat, not to mention the emergence of the AI opportunity. In the June ’25 quarter the “AI book” at IBM was $7.5 bl, while at the end of the Sept ’25 quarter, the AI book was pegged at $9.5 bl (cumulatively).
Another big change is the IBM business model transition from a mainframe and hardware business to a significant software business, which is now mid-40% of IBM’s total revenue. (Morningstar refers to IBM’s software segment as “it’s largest business segment”, but also notes that it doesn’t expect the software segment to become greater than 50% of revenue until 2029.)
Capex has been shrinking:
Looking at the cash-flow statement, here’s a look at IBM’s annual capex for the decade so far:
- 2025: $1.8 bl (thru 9 months)
- 2024: $881 million
- 2023: $1.492 billion
- 2022: $1.7 billion
- 2021: $2.2 billion
- 2020: $2.6 billion
The lowered capex has led to these free-cash-flow (FCF) numbers for the same period:
- 2025: $14.2 billion (est) (LSEG has a $6.8 bl free-cash-flow estimate for Q4 ’25)
- 2024: $13.0 billion
- 2023: $12.4 billion
- 2022: $6.9 billion
- 2021: $7.5 billion
- 2020: $10.4 billion
- For the entire decade from 2010 to 2019, IBM averaged $3.3 billion per quarter in free-cash-flow.
- Both the capex and the FCF data is taken from an internal spreadsheet. Any errors or conflicts with sell-side data are my own.
- Large acquisitions – like a RedHat – are typically considered part of capex, but the small acquisitions are not added back to capex.
Valuation:
At $292 per share, IBM is trading at 26x and 24 expected EPS in ’25 and ’26 of $11.35 and $12.32 per share, for expected EPS growth of 10% and 8% respectively.
The notable metric about 2025 is that revenue growth hit 7%, IBM’s best year of revenue growth since 2011 (!) – that was surprising to find on the spreadsheet.
Another notable stat readers might find interesting is that of the 16 years (2010 – 2025 inclusive), IBM has had negative year-over-year revenue growth in 10 of those years. The next highest year of revenue growth was +2% in 2010.
IBM hasn’t bought back any stock since $2 bl was repo’ed in Q4 ’18 and then $920 ml was repo’ed in Q1 ’19.
The cash-flow and free-cash-flow valuation as of 9/30/25 for IBM was 22x and 26x and Big Blue sported a 4% free-cash-flow yield as of the October ’25 earnings report.
IBM is one of two big-cap tech companies, (the other being Oracle) that benefit from a weaker dollar. That may have been one reason IBM is looking to finish off ’25 with 7% revenue growth, and with the weak dollar continuing into ’26, the expected, estimated 5% revenue growth for ’26 could be sweetened a little. Granted I’d rather see 7% pure organic growth, but the weak dollar does help at the margin.
Summary / conclusion: IBM’s stock price usually runs in 8, 10, 12 year cycles, of strong outperformance to capital destruction and returns that rival memory stocks:
- 1987: stock peaks near $180 – $190 (from memory) prior to ’87 crash. For rest of decade, server and workstation buildout through Corporate America decimates the mainframe business, and all of the early 1990’s were disastrous for the stock, as PC’s, servers, workstations multiplied like rabbits.
- 1995: Lou Gerstner named CEO, after running Nabisco, and acquires Lotus-1-2-3, and some other acquisitions for IBM, finally generating some earnings and revenue growth for the mainframe giant. Stock performs better in late 1990’s.
- 2002: Sam Palmisano replaces Lou Gerstner in 2002, sets IBM on a course involving “big data” and technology services. During Sam’s tenure, IBM’s stock price performance is double that of the SP 500;
- Sam Palmisano resigns 12/31/2011, handing Ginny Rometty a total bag of sand, just as the “cloud/mobile/ social” transformation was beginning in tech.
- Ginny Rometty saw the IBM stock price peak in April, 2013 and then languish for most of her tenure as IBM struggled to offset the secular decline in “tech services”.
- Arvind Krishna appointed IBM CEO on April 6, 2020, replacing Ginny Rometty. IBM stock finally breaks out above the April, 2013, all-time-high of $215 in late 2024.
Apologies for the history lesson, but there’s two ways you can evaluate the highs and lows of IBM: you can look at CEO’s tenures, or you can look at the technology cycles that proliferate our wonderful business, and determine if IBM can position themselves to benefit in some way, shape or form.
Under Arvind Krishna, IBM is positioning to gain some revenue from AI, as the AI book was $9.5 billion as of the Sept ’25 quarter, supposedly 22% of the consulting book.
This blog never owned the stock probably from early 2014 until the ramp in 2024 but got my attention as the stock headed towards it’s old high. I tried a few times to get in and out of it or pick a bottom, but the inevitable IBM cycle constantly re-asserted itself, and not in a good way, until late 2024.
If you think it’s easy to trade the great giants like IBM, Katy Huberty, a big-time technology strategist and stock picker at Morgan Stanley, made a notable buy call on IBM when the stock was trading around $115 – $120 in the first quarter of 2016 (crude oil had fallen from $94 in late 2014 to bottom in Q1 ’16 near $28 per barrel, and it rattled everything and everyone on the Street), putting a price target on Big Blue of $165 – $170 (again, from memory) and the stock took years to take out that level.
Personally, I think we are early in the “new” IBM cycle. Arvind is supposedly very capable and is re-positioning the company to benefit from AI, possibly Quantum, and what else may follow in the next few years.
Where does IBM reach “full value” ? Hard to say, over $300, or $350 or $400 – in past cycles the stock has outperformed.
In past cycles IBM has had excess cash-flow to repurchase stock and boost EPS, but for some reason – at least so far – the the CEO and CFO are unwilling to repurchase any stock. IBM’s balance sheet cash was 5% of the market cap of the stock after the October ’25 financial results were released. Management is likely being prudent and might look to pay down the $47 bl in term debt outstanding, $20 bl of which is from the RedHat acquisition.
Readers should look for continued revenue growth y-o-y, continued margin expansion as software closes in on 50% of IBM revenue and possibly better free-cash-flow in coming quarter’s and years.
This blog has a 2.5% position in IBM spread across client portfolios. Like the Boeing earnings preview yesterday these old American giants can make for great turnaround stories, with significant alpha generation, without getting tied up in the AI momo (momentum) stocks.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. LSEG I/B/E/S is the source for all EPS, revenue, operating income and free-cash-flow estimates cited above. Readers and clients need to determine their own comfort with portfolio volatility and act accordingly.
Thanks for reading.