IBM Stock Tests $240 as AI Partnerships and Red Hat Growth Support Breakout

IBM in Q2 came in at $17.2 billion in revenue, a 1% increase year over year. The quarter was somewhat of a mixed bag, with software growing revenue 5%, while consulting was flat and infrastructure declined by 7%, respectively.

The more critical detail regarding Red Hat is that revenue from Hybrid Cloud(led by Red Hat) grew 11% in Q2, and Data revenue grew 19%. Longer term, hybrid cloud and enterprise AI will provide greater revenue opportunities for IBM than traditional hardware will.

IBM's OpenShift, Ansible, HashiCorp, and Confluent have strong AI workload offerings across private and public clouds and regulated domains. The bigger challenge is whether these offerings can grow as quickly as needed to offset the slower Transaction Processing and legacy mainframe offerings.

One of the most important post earnings news is IBM’s August deal with Open AI. IBM is integrating OpenAI models into IBM Consulting Advantage and creating a dedicated OpenAI Practice with thousands of trained consultants and engineers.

The relationship is a strong fit. IBM does not have to build every model in the frontier. There is opportunity to monetize AI through integration, security, governance, consulting, and hybrid deployment, especially for financial services, government, and other regulated industries.

This differentiates IBM from hyperscale. IBM is more focused on becoming the trusted enterprise layer which connects advanced AI models across complex ecosystems.

IBM also entered into a $240 million, multi year deal, with Together AI. IBM Cloud will be deploying NVIDIA HGX B300 for Together AI and is expected to be available in Q1 2027.

IBM is able to address more AI infrastructure demand. IBM is more focused on enterprise workloads. Focus continues to be providing security, governance, and deployment for regulated use cases.

IBM’s announcement of their next gen processor is yet another important strategic move. Built in a 2-nm process with capabilities to integrate AI inference accelerators, this new processor will power the upcoming line of offerings in both the IBM Z and LinuxONE systems equipped to run workloads that span both traditional IBM architecture offerings and Arm based architectures.

The processor designed for next-gen offerings is a dual-architecture processor whose cores can natively execute both Arm and IBM Z/LinuxONE instructions. As Arm based processors have increasingly found more importance in both cloud computing infrastructure and AI, this new processor design from IBM should help bring the company's offerings closer to more modern cloud-native AI workloads.

Some of IBM's management teams were surprised by the execution of some of their larger software deals this past quarter. This reason, along with a sharp decline in revenue for IBM Z due to the passing of the surge from the initial launch of z17, explained some of the overall deal execution delays.

For the remainder of the year, IBM’s management teams still expect to hit a target of 4 to 5 percent year-over-year revenue growth in constant currency. Along with this, the teams still expect to see an increase of $1 billion from the Free Cash Flow (FCF) in the 2026 fiscal year versus 2025. During the first half of 2026, the company reported $4.8 billion in FCF.

For me, the more important part of this announcement is the FCF guidance, as the company reported $62 billion in total debt at the end of their last report. The company has the ability to fund acquisitions and pursue their AI initiatives, but Free Cash Flow is the most important part of this equation.

IBM will pay a quarterly dividend of $1.69 today, September 10. This makes it the latest quarterly payment in an uninterrupted annual dividend record dating back to 1916.

Slower legacy businesses, with a high debt load, mean IBM still needs strong organic growth. Investors aren't expecting multiple expansions or future fast share-price appreciation. That creates a rerating.

On September 9, IBM’s closing price of $239.94 was right at the chart’s reference of $239.97. The stock has built a clean sequence of higher lows with the July low of $197.89 and is now pressing into resistance at $241.57 after crossing $241.50 intraday.

IBM Price Chart - Source: Tradingview

A 4-hour close above $241.57 would cement an even more bullish case and open the pathway for $254.87. Beyond that is $268.77.

RSI sitting at 62 comfortably above its signal line at 50 shows that the control of the price is firmly in the hands of the buyer, and the market is not overbought. For the bullish case of $241.57 to be tested, and continue to hold resistance on the downside, $237.94 is the support level, followed by the rising trendline and $227.52.

The next level to test resistance is an even stronger bull case at $227.52, which is key structural support. IBM continues to push higher closing at the latest recorded price of $239.94.

The market is beginning to see IBM as more of an enterprise AI, hybrid cloud, and infrastructure platform as opposed to the traditional view of IBM as more of a legacy technology company. The growth of Red Hat, the partnership with OpenAI, the Together AI infrastructure arrangement, and the next generation of the IBM Z processor are the most recent significant catalysts.

A sustained 4-hour close above $241.57 would confirm an extension beyond current resistance and an even stronger bull case for $254.87 and $268.77.

IBM’s chart and fundamentals are looking better. Red Hat and enterprise AI partnerships are healthy. Plus, IBM Z’s new processor expands infrastructure possibilities. The biggest risks include the slow start in Q2, legacy business cyclicality, and the $62 billion debt burden. I remain bullish while $227.52 holds and anticipate a move to $241.57 and potentially $254.87-$268.77.