Can the Software Segment Remain a Key Growth Driver for IBM?

Over the years, International Business Machines Corporation’s IBM Software segment has recorded healthy revenue growth backed by a strong focus on product innovation and a growing adoption of its hybrid cloud services. The Software segment includes Hybrid Cloud (previously reported as Red Hat), Automation, Data and Transaction Processing businesses. The addition of cutting-edge products has significantly improved IBM Software’s ability to help organizations optimize IT spending, reduce cloud costs and boost overall efficiency through automation. 

With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which have led firms to undertake a cloud-agnostic and interoperable approach to highly secure multi-cloud management. This has led to a healthy demand for the hybrid cloud services of IBM.

The buyout of HashiCorp has further augmented IBM’s capabilities to assist enterprises in managing complex cloud environments. Moreover, HashiCorp’s tool sets complement IBM Red Hat’s portfolio, bringing additional functionalities for cloud infrastructure management. The integration of HashiCorp’s cloud software capabilities has bolstered IBM’s hybrid multi-cloud approach. In addition, IBM has completed the acquisitions of StreamSets and webMethods from Software AG to augment its AI platform and automation capabilities. The buyouts bring together leading capabilities in integration, API management and data ingestion. Complementing IBM DataStage and Databand platform with a hybrid and multi-cloud approach, the buyouts have enabled IBM to develop comprehensive application and data integration platforms in the industry.

Some Tech Firms Focusing on Hybrid Cloud

Microsoft Corporation MSFT has doubled down on the cloud computing opportunity. Azure’s increased availability in more than 60 announced regions globally has strengthened Microsoft's competitive position in the cloud computing market. Operating through a vast network of global data centers that ensure high availability and reliability for applications, Azure offers seamless access to all services included in the portal once customers subscribe to it. Subscribers can use these services to create cloud-based resources, such as virtual machines and databases, which can then be assembled into running environments used to host workloads and store data.

Amazon.com, Inc. AMZN enjoys a dominant position in the cloud-computing market, particularly in the IaaS space, thanks to Amazon Web Services (“AWS”), which is one of its high-margin-generating businesses. AWS is the world’s most comprehensive and broadly adopted on-demand cloud computing platform, offering more than 200 fully featured services from data centers globally. Millions of customers, including the fastest-growing startups, largest enterprises and leading government agencies, are using AWS to lower costs, become more agile and innovate faster. It reportedly offers the widest variety of databases that are purpose-built for different types of applications to enable subscribers to choose the right tool for the job.

IBM’s Price Performance, Valuation and Estimates

IBM has surged 23% over the past year compared with the industry’s growth of 25.5%.

From a valuation standpoint, IBM trades at a forward price-to-sales ratio of 3.67, below the industry tally of 3.90.

The Zacks Consensus Estimate for IBM’s earnings for 2025 has increased over the past 60 days.

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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This article originally published on Zacks Investment Research (zacks.com).

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