Should IBM Stock Be Part of Your Portfolio Post Solid Q4 Earnings?

International Business Machines Corporation IBM reported strong fourth-quarter 2025 results, with adjusted earnings and revenues beating the respective Zacks Consensus Estimate. The strong quarterly performance was driven by robust software growth led by hybrid cloud and watsonx AI platform, continued momentum in Red Hat, healthy consulting demand and improved cost efficiency. 

Despite economic uncertainty stemming from geopolitical issues, supply chain vulnerabilities, constrained federal spending and the evolving landscape of interest rates and inflation levels, the company expects to deliver sustainable growth through advanced technology and deep consulting expertise.

Hybrid Cloud & AI: IBM’s Key Pillars

IBM is poised to benefit from healthy demand trends for hybrid cloud and AI, which drive the Software and Consulting segments. The company’s growth is expected to be aided by analytics, cloud computing and security in the long run. A combination of a better business mix, improving operating leverage through productivity gains and increased investment in growth opportunities will likely boost profitability.

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, in turn, has translated into a healthy demand for IBM hybrid cloud solutions. In addition, the buyout of HashiCorp has significantly augmented IBM’s capabilities to assist enterprises in managing complex cloud environments. HashiCorp’s tool sets complement IBM RedHat’s portfolio, bringing additional functionalities for cloud infrastructure management and bolstering its hybrid multi-cloud approach.

IBM’s watsonx platform is likely to be the core technology platform for its AI capabilities. watsonx delivers the value of foundational models to the enterprise, enabling them to be more productive. This enterprise-ready AI and data platform comprises three products to help organizations accelerate and scale AI: the watsonx.ai studio for new foundation models, generative AI and machine learning, the watsonx.data fit-for-purpose data store built on an open lake house architecture and the watsonx.governance toolkit to help enable AI workflows to be built with responsibility and transparency.

Price Performance

IBM has surged 11.9% over the past year compared with the industry’s growth of 118.1%, outperforming peers like Amazon.com, Inc. AMZN and Microsoft Corporation MSFT. While Amazon has inched up 1%, Microsoft declined 0.6% over this period.

One-Year IBM Stock Price Performance

Estimate Revision Trend

IBM is currently witnessing an uptrend in estimate revisions. Earnings estimates for IBM for 2026 have moved up 1.3% to $12.35 over the past seven days, while the same for 2027 has increased 1.4% to $13.29. The positive estimate revision portrays bullish sentiments about the stock’s growth potential.

Stiff Competition, Price Wars Mar IBM’s Growth Prospects

Despite solid hybrid cloud and AI traction, IBM is facing stiff competition from Amazon Web Services and Microsoft Azure. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes. The company’s ongoing, heavily time-consuming business model transition to the cloud is a challenging task. Weaknesses in its traditional business and foreign exchange volatility remain a significant concern.

IBM is resorting to massive job cuts to reduce operating costs. A significant part of these jobs has reportedly taken place in India under a “resource action” plan, an ongoing corporate strategy to tap the vast talent pool of the subcontinent at lower operating costs. This largely impacted employees from marketing and communications as the company focused on high-margin AI and software, boosting productivity with leaner teams.

End Note

With solid fundamentals and healthy revenue-generating potential driven by robust demand trends, IBM is witnessing a steady growth curve. The company is likely to benefit from increasing client demands to modernize core systems, redesign workflows and extract more value from huge troves of data. A strong emphasis on quantum computing and hybrid cloud, and an AI focus are driving value for customers. With improving earnings estimates, the stock is witnessing a positive investor perception. 

However, IBM’s growth is dented by high operating costs and stiff competition that reduce its profitability. With a Zacks Rank #3 (Hold), IBM appears to be treading in the middle of the road, and new investors can be better off if they trade with caution. 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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