Kyndryl Holdings, Inc. (KD): A Resilient Outperformer in a Volatile Business Services Sector

Kyndryl Holdings (KD) has emerged as a standout performer in the turbulent IT infrastructure services sector, defying broader market headwinds through disciplined cost management, strategic reinvention, and a focus on high-margin services. While the company's revenue declined in both Q2 and Q3 2025, its adjusted EBITDA and net income surged, reflecting the success of its “three-A” initiatives (Alliances, Advanced Delivery, and Accounts). For investors, the question is whether this earnings momentum and valuation discipline position Kyndryl as a long-term outperformer or a temporary rebound story.

Valuation-Driven Growth: A Tale of Two Metrics

Kyndryl's financials reveal a company prioritizing margin expansion over top-line growth. In Q2 2025, revenues fell 7% year-over-year to $3.8 billion, driven by the deliberate reduction of low-margin third-party content in customer contracts Kyndryl reports second quarter fiscal 2025 results^[1]. However, this strategic pivot yielded a 14% year-over-year jump in adjusted EBITDA to $704 million in Q3 2025, with adjusted net income rising to $124 million ($0.51 per diluted share) Kyndryl reports second quarter fiscal 2025 results^[1]. The company's adjusted EBITDA margin of 18.8% in Q3 (calculated from $704 million on $3.74 billion revenue) already exceeds its full-year 2025 guidance of 16.3%, signaling robust operational leverage.

The valuation story is equally compelling. With a trailing P/E ratio of 26.69 and a forward P/E of 12.94 , Kyndryl trades at a discount to its historical averages and peers in the business services sector. Its enterprise value of $10.16 billion implies a price-to-adjusted EBITDA multiple of roughly 10x, assuming full-year 2025 adjusted EBITDA reaches $1.1 billion (based on Q3 guidance). This is significantly lower than the sector average of 14x, suggesting undervaluation despite its strong earnings trajectory.

Earnings Momentum: Strategic Initiatives Fueling Profitability

Kyndryl's three-A initiatives are the engine behind its earnings resilience. The Alliances initiative, which partners with cloud hyperscalers like AWS and Microsoft, generated $260 million in Q2 2025 revenue and is on track to hit $1 billion annually by fiscal 2025 Kyndryl reports second quarter fiscal 2025 results^[1]. Meanwhile, the Advanced Delivery initiative, powered by the AI-driven Kyndryl Bridge platform, delivered $700 million in annualized savings by Q3, directly boosting margins Kyndryl reports second quarter fiscal 2025 results^[1].

The Accounts initiative, focused on high-value customer accounts, has unlocked $775 million in cumulative annualized benefits, nearing its $850 million target Kyndryl reports second quarter fiscal 2025 results^[1]. These initiatives are not just theoretical: they are translating into tangible results. For instance, Kyndryl's adjusted pretax income surged 154% year-over-year to $160 million in Q3 2025 Kyndryl reports second quarter fiscal 2025 results^[1], while its full-year adjusted free cash flow guidance was raised to $350 million, up from $300 million Kyndryl reports second quarter fiscal 2025 results^[1].

Signings and Shareholder Returns: A Growth Catalyst

Despite revenue declines, Kyndryl's order book is booming. Total signings in Q3 2025 hit $4.1 billion, a 10% year-over-year increase, with 12-month total signings reaching $16.3 billion—a 31% year-over-year jump Kyndryl reports second quarter fiscal 2025 results^[1]. This pipeline suggests that the company's revenue base may stabilize or even grow in 2026, particularly as its high-margin consulting segment (Kyndryl Consult) delivered 26% year-over-year revenue growth in Q3 Kyndryl reports second quarter fiscal 2025 results^[1].

Shareholder returns further bolster the case for Kyndryl. The company launched a $300 million share repurchase program in Q3, repurchasing 859,000 shares at $30 million Kyndryl reports second quarter fiscal 2025 results^[1]. With a market cap of $7.57 billion , this buyback represents a meaningful allocation of capital, potentially enhancing earnings per share and signaling management's confidence in the stock's intrinsic value.

Risks and Challenges

Kyndryl's strategy is not without risks. The company's revenue declines, albeit narrowing (from -7% in Q2 to -5% in Q3), highlight the challenges of transitioning to higher-margin services. Additionally, its reliance on cloud hyperscaler partnerships exposes it to pricing pressures and competition from direct cloud providers. However, the 132% year-over-year growth in Q2 total signings and the 35% year-over-year growth in Kyndryl Consult signings Kyndryl reports second quarter fiscal 2025 results^[1] suggest that demand for its hybrid IT services remains strong.

Conclusion: A Buy for the Long-Term

Kyndryl's combination of valuation discipline, earnings momentum, and strategic clarity makes it an attractive long-term investment. While near-term revenue declines may persist, the company's adjusted EBITDA growth, margin expansion, and strong order book position it to outperform in a sector marked by volatility. For investors seeking a business services stock with a clear path to profitability and a compelling valuation, Kyndryl offers a compelling case.