IBM Surges 16% in Six Months: Is it Time to Buy the Stock?

International Business Machines Corporation IBM has surged 16% over the past six months compared with the industry’s growth of 1.8%, outperforming peers like Microsoft Corporation MSFT and Amazon.com, Inc. AMZN. Despite the rising adoption of enterprise capabilities of Azure OpenAI and Amazon Web Services, both Microsoft and Amazon are lagging behind IBM in terms of price performance. While Microsoft has gained 5% over the same period, Amazon has declined 8.4%.  

Six-Month IBM Stock Price Performance

Hybrid Cloud, AI Fueling IBM’s Growth Engine

IBM is benefiting from healthy demand trends for hybrid cloud and AI (artificial intelligence) solutions, 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 term. 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 the company’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.

watsonx AI Labs: IBM’s Ploy to Accelerate AI adoption

IBM’s watsonx platform has been the core technology platform for its AI capabilities. It 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.

The company recently launched watsonx AI Labs in New York City to accelerate AI adoption by unlocking its global network of engineering labs for AI developers. This collaborative hub of IBM researchers and engineers with startups, scale-ups and some of the world's largest enterprises will seek to co-create agentic AI solutions for clients and foster the growth of the innovation ecosystem. The watsonx AI Labs will connect IBM's enterprise resources and expertise with the next generation of AI developers seeking to build breakthrough AI applications for businesses.

Estimate Revision Trend of IBM

IBM is currently witnessing an uptrend in estimate revisions. Earnings estimates for 2025 have jumped 1.5% to $10.95 over the past 60 days, while the same for 2026 has increased 0.4% to $11.66. The positive estimate revision portrays bullish sentiments about the stock’s growth potential.

IBM Plagued by Margin Woes

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 challenging. Weakness in its traditional business and foreign exchange volatility remain significant concerns. 

IBM is likely to retrench about 9,000 jobs this year in the United States to reduce operating costs. A significant part of these jobs is slated to be shifted to India under a “resource action” plan, an ongoing corporate strategy to tap the huge talent pool of the subcontinent at lower operating costs. Although the company spokesperson has refused to comment on the grapevines and commit an exact figure for the layoffs, various sources have confirmed that the action has already started.

Certain job cuts have been confirmed in Raleigh, NC; New York City, NY; Dallas, TX; and CA, impacting employees from consulting, corporate social responsibility, cloud infrastructure, sales and internal systems teams. A majority of job losses have also been reported in the Human Resource department as IBM aims to integrate AI into its operations, particularly in back-office functions.
 

End Note

With solid fundamentals and healthy revenue-generating potential driven by robust demand trends, IBM is witnessing a steady growth curve. Further, a strong emphasis on hybrid cloud, diligent execution of operational plans and AI focus are driving more value for customers. Moreover, with improving earnings estimates, the stock is witnessing a positive investor perception at the moment. 

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 could 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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