IBM Stock Slides Over 5% Despite Earnings Beat, Analyst Target Hikes — Software Growth Faces 2027 Test

• Jefferies raised its IBM price target, but said sustaining near-double-digit software growth in 2027 would require stronger organic execution in automation and data.
• Morningstar lifted its fair value for IBM stock, citing accelerating Red Hat bookings.
• Citi also raised its target on the stock to $280 from $245 and maintained a ‘Buy’ rating.

International Business Machines Corp. (IBM) shares fell nearly 6% despite multiple firms raising price targets, as analysts flagged challenges to sustaining the company's software growth momentum into 2027.

IBM on Wednesday reported better-than-expected fiscal third-quarter (Q3) results, with revenue of $17.1 billion topping Fiscal.ai's $16.84 billion consensus and adjusted earnings per share (EPS) of $2.95, beating the $2.87 estimate.

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As of this writing, IBM stock was down nearly 6% in Thursday's premarket and was among the top trending tickers on Stocktwits.

Analysts Focus On Whether IBM’s Software Rebound Can Last

Jefferies analyst Brent Thill raised IBM's price target to $280 from $270 while maintaining a ‘Buy’ rating. 

According to the note cited by TheFly, the analyst acknowledged the rebound in software sales but said the key question was whether IBM could sustain that momentum and achieve near-double-digit software growth in 2027. It would require broader organic execution in automation and data, Thill added.

Morningstar analyst Luke Yang similarly identified software performance as the biggest variable driving IBM's stock, particularly as its z17 mainframe enters the middle of its product cycle and consulting demand remains stable.

Yang raised Morningstar's fair value estimate to $230 from $225 earlier, citing stronger-than-expected Red Hat bookings growth in the high teens. However, the firm said further acquisitions would be necessary for IBM to achieve management's long-term double-digit software growth target. 

It forecasts approximately 7% average annual organic software growth over the next five years.

Separately, Citi raised its price target to $280 from $245 and maintained a ‘Buy’ rating, remaining constructive on IBM shares. Barclays also raised IBM's price target to $277 from $262 and maintained an ‘Overweight’ rating, per TheFly. 

The firm said the key question is how IBM's stronger third-quarter results translate into fourth-quarter and fiscal 2027 expectations, adding that it views management's guidance commentary as conservative.

What IBM's Latest Quarter Revealed

IBM's software revenue increased 8% year over year to $7.8 billion, accelerating from 5% growth in the previous quarter. Transaction Processing returned to 9% growth after declining 8% in the second quarter. 

Meanwhile, Red Hat grew 11%, and Data revenue increased 19%, although Automation declined 3%. Morningstar attributed a 210-basis-point expansion in the software segment's profit margin to productivity improvements.

IBM also raised its full-year software revenue growth outlook to about 7% to 8% from 6% to 8%, while maintaining its companywide constant-currency revenue growth forecast of 4% to 5%.

The company increased its full-year free cash flow growth expectation to more than $1 billion, from approximately $1 billion previously.

Retail Investors’ Sentiment Around IBM

Even as the shares slipped premarket, retail investors’ sentiment around IBM stock flipped into the ‘bullish’ territory from ‘neutral’ a day earlier amid high message volume. 

So far this year, IBM stock has fallen nearly 14%. By comparison, the ProShares Ultra Nasdaq Cloud Computing (SKYU) and the State Street Technology Select Sector SPDR ETF (XLK), which hold the stock, have risen around 50% and 31%, respectively, over the same period.

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