IBM Stock Before Q3 Earnings Release: A Smart Buy or Risky Investment?

International Business Machines Corporation IBM is scheduled to report third-quarter 2025 earnings on Oct. 22. The Zacks Consensus Estimate for sales and earnings is pegged at $16.09 billion and $2.43 per share, respectively. Earnings estimates for IBM for 2025 have improved to $11.13, and for 2026, it has declined to $11.95 per share, respectively, over the past 60 days.

Earnings Surprise History

The cloud and data platform delivered a four-quarter earnings surprise of 6.29%, on average, beating estimates on each occasion. In the last reported quarter, the company pulled off an earnings surprise of 6.06%.

Earnings Whispers

Our proven model predicts a likely earnings beat for IBM for the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is exactly the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

IBM currently has an ESP of +2.20% with a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Shaping Upcoming Results

During the quarter, the company launched IBM Power11, the next-generation IBM Power server. This offers up to 55% better core performance and up to 45% more capacity compared to its predecessors. The solution enables organizations to achieve greater resiliency and performance to ensure smooth hybrid deployment on premises or in the cloud environment.

In the to-be-reported quarter, IBM’s subsidiary, Neudesic, renewed its Cloud Security Specialization with Microsoft Corporation MSFT to continue delivering enterprise-grade security solutions across hybrid and multi-cloud environments. Certification from Microsoft validates Neudesic's ability to help clients protect critical infrastructure and data across Azure and on-premises systems.

The company also inked a partnership with Advanced Micro Devices to develop scalable, open-source platforms that could redefine the future of computing. The next-generation computing architectures, known as quantum-centric supercomputing, will introduce a new dimension to the realm of quantum computing by enabling users to increase the complexity of algorithms in the quantum hardware. 
During the quarter, Deutsche Telekom also deployed IBM’s AI-powered solution to streamline its IT processes. These factors are expected to have a favourable impact on upcoming earnings. 

The company’s strong focus on innovation allows it to hold a dominant position in a highly competitive cloud domain, which includes tech giants like Microsoft, Oracle and Amazon.

The Zacks Consensus Estimate for revenues from the Software segment is pegged at $7.26 billion, while our model projects revenues of $7.52 billion. The Zacks Consensus Estimate for revenues from the Consulting segment is pegged at $5.25 billion, while our model projects revenues of $5.17 billion.

Price Performance

Over the past year, IBM has gained 19.9% compared with the industry’s growth of 45.7%. It has trailed its peers like Microsoft and Oracle Corporation ORCL over this period. While Oracle has gained 75.1%, Microsoft has gained 23.3%.

Key Valuation Metric

From a valuation standpoint, IBM appears to be trading at a premium relative to the industry and is trading above its mean. Going by the price/earnings ratio, the company shares currently trade at 23.85 forward earnings, higher than 23.81 for the industry and the stock’s mean of 22.23.

Investment Considerations

IBM has been taking several initiatives to strengthen its leadership position in the expanding AI landscape. The IBM watsonx platform, which is the core technology platform for AI capabilities, is gaining solid market traction. The AI tools, such as IBM Guardium-AI security that ensures reliable AI deployment, IBM Network Intelligence that addresses the complexities of modern telecommunication networks, are also witnessing healthy demand. 

Strategic collaboration with major industry leaders is boosting prospects in the cloud infrastructure and quantum computing space. The company boasts a vast client base across multiple industries, including financial services, telecommunications, healthcare, retail and more. Strong presence across multiple sector highlights resiliency in its business model.

End Note

Despite macroeconomic challenges and stiff competition in most of its served markets, IBM expects to deliver sustainable growth through advanced technology and deep consulting expertise.

The company is experiencing healthy hybrid cloud adoption and solid demand trends across automation and generative AI offerings like watsonx. This is likely to drive growth in the Software segment. The Consulting segment is benefiting from growing digital transformation and AI adoption initiatives across industries. Focus on working capital efficiencies is boosting free cash flow. Hence, with a Zacks Rank #2, IBM appears to be primed for further stock price appreciation.

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

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