IBM Posts Mixed Q3 Results, These Analysts Differ On Prospects

Shares of IBM IBM tanked in early trading on Thursday, after the company reported downbeat third-quarter revenues.

The company reported its results amid an exciting earnings season. Here are some key analyst takeaways.

• Morgan Stanley analyst Erik Woodring maintained an Equal-Weight rating, while lowering the price target from $217 to $208.
• BMO Capital Markets analyst Keith Bachman reiterated a Market Perform rating, while raising the price target from $235 to $260.
• Bank of America Securities analyst Wamsi Mohan maintained a Buy rating and price target of $250.
• Goldman Sachs analyst James Schneider maintained a Buy rating and price target of $250.
• RBC Capital Markets analyst Matthew Swanson maintained an Outperform rating and price target of $250.RBC Capital Markets
• Piper Sandler analyst James Fish said that one of the takeaways from IBM's results is the pause in discretionary spending.

Check out other analyst stock ratings.

Morgan Stanley: IBM reported third-quarter revenues of $15 billion, short of expectations, "as Infra (6% miss) and Consulting (1% miss) underperformed, while Software (1% beat) outperformed," Woodring said in a note. "On the positive side, RHT growth of 14% Y/Y and TPP growth of 9% Y/Y were both well ahead of our expectations, leading to a software revenue beat, impressive software gross margin expansion, and a 90bps total company gross margin beat," he added.

The company reported total Gen AI bookings of $1 billion, although Gen AI revenue contribution was limited, the analyst stated. "Consulting commentary creates a bit more of a 2H-loaded 2025 than we expected," he further wrote.

BMO Capital Markets: IBM's quarterly results were mixed, "with a miss on revenues due to weakness in Consulting and Infrastructure," Bachman said. He added, however, that the company's Software growth remained strong during the quarter, driven by recent M&A (merger and acquisition) deals.

This has improved growth prospects in fiscal 2025, "with the potential addition of HashiCorp," the analyst stated. "Moreover, we believe IBM has solid FCF growth potential in FY25 helped by ongoing margin expansion aided by mix," he further wrote.

BofA Securities: IBM's AI book of business expanded to more than $3 billion, with AI signings being "mid to long-term strategic digital transformation Gen AI deals with higher duration (high 40 months vs. avg low 20s)," Mohan said. "Despite the quarter being a mixed bag, mgmt. sounded confident in their 2025 commentary," he added.

Management guided to continued momentum in Red Hat, "which could result in a ~3% lift y/y to the overall software segment in 2025," the analyst stated. "We expect Consulting weaker in 1H but offset by accelerating software and Mainframe cycle," he further wrote.

Goldman Sachs: IBM reported revenues of $14.97 billion, which missed Street projections of $15.07 billion, and earnings from continuing operations of $2.30 per share, beating consensus of $2.21 per share, Schneider said. "Strength in Software was offset by a revenue miss in Consulting and Infrastructure, with tepid Consulting revenue likely continuing into early 2025," he added.

The analyst recommended to buy the stock on the pullback as a response to results, citing "management's guidance for further Software acceleration in 2025." Trends in Consulting are likely to improve over the next few quarters, he added.

RBC Capital Markets: IBM's quarterly results were mixed, with Software revenues being driven by "particular strength from Red Hat," Swanson said. Infrastructure, which had so far been strong, slowed, while Consulting "continued to see headwinds around discretionary spend reflected in declining signings," he added.

Management expected $3.5 billion in annual run rate savings from its productivity initiatives by yearend, up from their previous projection of $3 billion, which is reflected in their operating margin guidance of an expansion of 100 basis point year-on-year, the analyst stated. "While management expects to benefit from an improving consulting environment and hardware refresh in 2025, both are likely to be weighted to the 2H, increasing the focus on software in 1H/25," he further wrote.

Piper Sandler: The pause in discretionary spending "shows continued IT budget constraints (particularly for non-AI) near term, but a glimmer of hope for 2025 growth durability."

Infrastructure results highlighted trend that are “weak, but not getting weaker,” although this is "a slight negative for on-premise names," he added. "Red Hat acceleration is encouraging for Infrastructure Software given ongoing tailwinds, particularly Nutanix," the analyst wrote. The HashiCorp deal is still expected to close by yearend, he further stated.

Price Action: Shares of IBM had declined by 6.59% to $217.41 at the time of publication on Thursday.

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