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IBM Stock Near Record Highs With Earnings Due Soon — Here's What to Watch

Hey friends,

IBM’s stock has been on a tear lately—up around 30% year-to-date, outpacing the S&P 500 and even many big tech names. We're also just days away from their Q2 earnings report, and all eyes are on how CEO Arvind Krishna's bets on AI, hybrid cloud, and new mainframes are paying off. But when a stock has climbed so high, the bar for performance gets sky-high too. Today, I want to break down why IBM is at a crossroads, what I’m watching in their upcoming report, and what this all means for us as investors.

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1. A Remarkable Climb: From Old-Guard to AI Leader

Once best known for aging mainframes and hardware, IBM has transformed itself recently:

• It’s gained nearly 30% in 2025, making it one of the top-performing Dow stocks.

• Analysts say IBM is now viewed more like a cloud and AI growth company, thanks to platforms like watsonx and the new z17 AI-capable mainframe.

• Giants like Wedbush and Bank of America have raised price targets above $320, citing its AI platform strength and strong free cash flow.

• But at a valuation around 24x earnings, IBM trades well above its five-year average, signaling high expectations.

2. Why the Q2 Report Is a High-Stakes Moment

Earnings season can be tricky for high-flyers like IBM. Here's what’s riding on Q2:

• Analysts expect ~$2.65 per share and about 5-9% year-over-year revenue growth.

• The software division—especially Red Hat hybrid-cloud—needs to hit roughly 10% growth to keep the story alive.

• Investors will also track mainframe revenue, consulting trends, and AI business bookings, now over $7.5 billion.

• Any slowdown in key segments could trigger a pullback, even if headline numbers beat estimates.

3. What Analysts Are Warning About

Here are some of the cautious voices and why they matter:

• Morgan Stanley says IBM has limited room for error—software growth needs to stay solid or the valuation premium shrinks.

• Barron’s noted that though IBM beat consensus, the software segment just matched expectations—enough to pull shares down in after-hours trading.

• Bank of America highlighted that while IBM is a defensive AI-themed play, segments like consulting and legacy infrastructure may struggle, especially with macro uncertainty cooking.

4. The Silver Linings: Why I Still Stay Bullish

Despite the risks, there’s a lot to like:

• AI momentum is real: IBM’s generative AI bookings nearly doubled in six months—from $2 billion to $7.5 billion.

• Mainframe comeback: The new z17 mainframes are fueling a 14–21% lift in infrastructure revenue.

• Consulting bounce: After several weak quarters, consulting saw a modest 3% YoY gain—a sign of stabilization.

• Healthy cash flow: IBM boosted its free cash flow guidance to over $13.5 billion, signaling operational strength.

5. My Watch Items for the Earnings Call

a) Software Momentum

IBM needs about 10% software revenue growth to justify its premium valuation. Anything under that risks stock pullback.

b) Mainframe & Infrastructure Reaction

Will the z17 harvest more customers and revenue? Even a small miss here could mute enthusiasm.

c) Future Guidance

They’ve returned to issuing less quarterly forecasting, but any tone around sluggish consulting demand or currency risks could hurt sentiment.

d) AI Bookings Progress

Is the AI business still growing by hundreds of millions per quarter? That momentum is central to the “new IBM” narrative.

e) Cash Flow and Margins

High free cash flow in a high-valuation stock is a solid anchor. Watch for any updates here.

6. My Personal Game Plan With IBM

Here's how I’m handling it:

1. Holding a position, not adding until after earnings—at current valuation, I want more clarity.

2. Watching post-earnings reaction: a miss in software can see a 5–10% drop; a beat could push it higher.

3. Focusing on dividends: IBM pays a healthy yield (~4.5%), which cushions some volatility.

4. Planning for follow-up: If Q2 is strong, I may hold; a weakness might prompt trimming and waiting for a better entry.

7. Is IBM a Buy? A Balanced View

Here’s how I see it:

• IBM is now a hybrid between a value stock and a tech growth tale due to AI and cloud.

• That’s why it commands a valuation usually reserved for Big Tech.

• The math makes sense—if earnings keep growing 6–8% per year and margins stay stable, IBM can hold or slowly climb.

• But markets reward surprise gains even more—so becoming a consistent outperformer is key for future upside.

Final Takeaways

IBM has climbed high on an impressive AI and modernization turnaround. Now, earnings will test whether that rally can stick—or if it simply reached its ceiling.

• A clean beat + strong AI and software guidance could unlock further gains.

• But even a small stumble could lead to a profit-taking pullback, especially in such a high-valuation setup.

For me, patience pays. IBM is on my radar—not a sure thing, but worth watching closely. I’ll be tuned in during the earnings call to help decide what comes next.

To you, my newsletter family: Companies can only keep proving themselves in the market. IBM’s Q2 report isn’t just numbers—it’s its chance to show the world it deserves this new, higher valuation.

Stay curious. Stay calm. And always keep the long game in mind.

— Your friend in finance

[Live Life Grow Wealth]

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I make no representations, warranties, or guarantees, whether expressed or implied, that the content provided is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

I am an individual content creator and not regulated or licensed by the Monetary Authority of Singapore (MAS) as I do not provide investment services.

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