IBM Stock Forecast: Q3 Software Rebound Can't Hold the Breakout as Shares Fall Back Toward $238.20

Revenue for the quarter was $17.10 billion, up 5% from the same quarter last year, or 6% at constant currency. Analysts were expecting revenue of $16.82 billion. Operating EPS was $2.95, above the $2.86 estimate, up from the same quarter last year of $2.65. Operating pre-tax margins were 19.3%, up 0.7% from the same quarter last year.

In July, IBM said weak results were attributed to deals slipping out of the quarter. CFO Jim Kavanaugh said about two-thirds of the large software deals that slipped from Q2 have now closed. Kavanaugh said that about a quarter of software's acceleration was attributed to those deals and that about three-quarters of the acceleration was due to new business.

TP, the mainframe software business, reported constant currency growth of 10% in Q3 after declining by 9% in Q2. IBM CEO Arvind Krishna said that he does not expect the double-digit growth in the business to continue and that they now expect the business to be flat for the year.

Software, at constant currency, increased by 9% to $7.80 billion, an acceleration by 4 points from Q2. IBM said Red Hat grew 11%, with bookings growth now in the high teens, and OpenShift is now a $2.4 billion annual recurring revenue business and is growing by over 30%. IBM said data revenue grew by 20% in the quarter while Automation revenue fell by 3%. Annual recurring revenue from software grew by 8% to $24.9 billion.

Revenue from Infrastructure was up 5% at constant currency to $3.71 billion. Distributed Infrastructure grew 32%, while IBM Z declined 20%, better than the 42% decline in Q2. Consulting revenue increased 2% at constant currency to $5.34 billion, and AI now accounts for about 30% of consulting revenue and 35% of its backlog.

IBM said its 2026 revenue growth outlook of 4% to 5% at constant currency remains the same, with its profit and cash plans anchored to the 4% base case. It increased its outlook for free cash flow growth to more than $1 billion, up from about $1 billion, and expects software revenue growth of about 7% to 8%. Krishna said he is comfortable with double-digit growth at Red Hat in Q4, but would not comment on 2027.

With no changes to the revenue range following a beat, there is less room for Q4, and part of Q3's software strength came from recovered deals that will not repeat. Gross margins also narrowed, with software at 82.5% from 83.1% and consulting at 27.4% from 29.3%. The higher cash flow outlook did not stop the after-hours share decline.

Free cash flow for Q3 increased to $3.03 billion from $2.37 billion, bringing the nine-month total to $7.79 billion. During the quarter, IBM spent $1.6 billion on dividends and ended the quarter with cash, restricted cash and marketable securities of $11.1 billion.

On the daily chart, IBM broke above the $238.20 to $241.57 resistance area on Wednesday, which has capped the upside since August, and posted its highest close since early September. The pre-market quote around $236.88 would put the price back below the resistance area and the moving average at $238.20. A break above a resistance area and subsequent close below it is known as a “bull trap.” In this case, the moving average sits at $233.19.

IBM Stock Price Chart - Source: Tradingview

Relative Strength Index (RSI) ended the day at around 70, above its signal line, so momentum was stretched before the reversal and could fast-cool if the selling carries into the open.

If the selling pressure continues and price closes below the $238.20 area, the move would confirm the breakdown, opening the way to $233.19 and $226.24. A breakdown below the uptrend line from the July lows would open the area around $210.97. Until IBM closes above the $241.57 area, in my opinion, bears are in control.

Key Levels

Last Close: $251.46, up 3.94% on October 21

Support: $241.57, $238.20, $233.19, $226.24, $210.97

Resistance: $251.75, $260.74, $277.06

RSI: 69.91, above its signal line at 50.75

Bullish Target: Daily close above $241.57

Bearish Target: Daily close below $238.20

Why is IBM stock falling after Q3 earnings?

IBM won the quarter as expected and mostly recovered its software deals. Still, it held its 2026 revenue growth view at 4-5% and its gross margins narrowed. The shares surged 6% after the bell, and then fell 3.66%

What is the IBM stock forecast after earnings?

The bias is neutral while the stock trades around the $238.20 to $241.57 zone. A close above $241.57 brings $251.75 and $260.74 into range, and a close below $238.20 opens $233.19 and $226.24.

With July's demand question answered, IBM's software growth was back at 9% and Transaction Processing was once again positive. However, the unchanged revenue outlook limits what the market is willing to pay. The focus level is at $238.20. Pressure will continue to be the case for IBM while it trades below that level. Only a close above $241.57 brings the bull case back into play.