Will Relatively Higher Software Revenues Aid IBM's Earnings in Q4?

International Business Machines Corporation IBM is scheduled to report fourth-quarter 2025 earnings on Jan. 28, 2026. In the to-be-reported quarter, the company is likely to have recorded higher revenues from the Software segment with a strong focus on product innovation and the growing clout of watsonx.ai across various sectors.

Factors at Play

The Software segment includes Hybrid Cloud (previously reported as Red Hat), Automation and Data and Transaction Processing.

During the fourth quarter, IBM inked a partnership with S&P Global Inc. SPGI to equip business enterprises with AI-powered tools for effective supply chain management. Per the collaboration, IBM's watsonx Orchestrate agentic framework will be embedded into S&P Global's supply chain and vendor selection tools for key insight and improved visibility. Leveraging S&P Global's proprietary data, research and analytics along with IBM’s AI capabilities, the partnership aims to expedite the decision-making process across supply chain management.

In the quarter under review, IBM collaborated with Groq, which specializes in fast and affordable inference infrastructure that efficiently powers AI models, to accelerate agentic AI deployment. IBM is set to integrate Groq's inference technology, GroqCloud, on watsonx Orchestrate to enable clients to tap into high-speed and high-performance inference. IBM also aims to integrate Groq LPU architecture into its Red Hat open source vLLM technology and enhance IBM Granite models. The collaboration aims to address critical challenges related to speed, cost and reliability of AI agent adoption in major sectors like healthcare, finance, government, retail and manufacturing. These are likely to have generated incremental revenues for the Software segment.
 
During the quarter, IBM acquired Confluent, Inc., a leading provider of an open-source enterprise data streaming platform. The acquisition is expected to modernize its streaming data, real-time processing and cloud-native data services. IBM’s client base is likely to increase as it will offer both traditional enterprise services and real-time data. This is likely to have translated into additional revenues for the Software segment.

Overall Expectations

The Zacks Consensus Estimate for Software revenues is pegged at $8.9 billion, indicating an improvement from $7.9 billion recorded in the year-ago quarter. 

The Zacks Consensus Estimate for total revenues for the company stands at $19.22 billion. It generated revenues of $17.55 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $4.33 per share, indicating growth from $3.92 in the year-earlier quarter.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for IBM for the fourth 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 not 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 0.00% with a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Advanced Micro Devices, Inc. AMD is set to release quarterly numbers on Feb. 3. It has an Earnings ESP of +2.01% and carries a Zacks Rank #3. 

The Earnings ESP for Cirrus Logic, Inc. CRUS is +5.90% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Feb. 3.

The Earnings ESP for Alphabet Inc. GOOGL is +0.49% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb. 4.

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

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