IBM Earnings Preview: AI Hype, Quantum Wins, and a Big Test at $300 Resistance

International Business Machines (IBM) reports earnings after the close tonight, with expectations running high that the century-old tech icon will show tangible progress in its AI and quantum computing initiatives — two themes that have reinvigorated investor interest after a volatile few months. The company’s latest partnerships, including a high-profile collaboration with Anthropic to integrate Claude into IBM’s software portfolio and a quantum breakthrough with HSBC using IBM’s Heron processor, have reignited optimism that IBM’s pivot toward high-value, enterprise-grade AI is taking root. Yet the market backdrop remains unforgiving: big-cap tech has broadly struggled this month, and with IBM shares bouncing from $272 to around $286 after sliding from the $300 area, tonight’s print will need to be exceptional to break that ceiling.

Wall Street expects IBM to report Q3 EPS of $2.45 (range $2.36–$2.65) on revenue of $16.09 billion, up roughly 6% year-over-year. The implied post-earnings move is ±5.6%, a reflection of uncertainty around both near-term growth and the company’s ability to sustain free cash flow momentum. Analysts anticipate IBM will reaffirm its 2025 free cash flow target of at least $13.5 billion, with some, like Morgan Stanley, expecting management to nudge guidance slightly higher. The consensus rating remains a Hold with an average price target of $282, though bulls such as Stifel and Bank of America maintain Buy ratings and $310 targets, arguing IBM’s software segment and mainframe cycle position the stock for steady gains even in a choppy macro environment.

The central question heading into tonight’s report is whether IBM can demonstrate a genuine software reacceleration after a period of uneven growth. Morgan Stanley’s AlphaWise tracker points to an uptick in organic software revenue, led by Transaction Processing and Automation — segments that together account for more than half of IBM’s software business. Stifel and BofA see renewed momentum here as the z17 mainframe upgrade cycle drives demand for associated software licenses. Red Hat and the recently integrated HashiCorp business will also be under scrutiny, as both are expected to contribute to mid- to high-single-digit constant currency growth in software this quarter. Analysts are looking for free cash flow of roughly $2.3 billion in Q3, which would reassure investors that IBM’s full-year target remains intact despite mixed consulting trends.

Key items to watch include the pace of AI monetization, particularly contract wins and incremental revenue from watsonx, IBM’s enterprise AI platform. The company’s partnership with Anthropic is viewed as a validation of its AI strategy, embedding governance and security features directly into the model lifecycle. Similarly, the multi-year collaboration with AMD and Zyphra to provide AI training clusters using MI300X GPUs on IBM Cloud adds credibility to its role as an infrastructure provider for generative AI workloads. Quantum computing remains another bright spot, with IBM’s Heron processor delivering measurable results for HSBC’s bond trading models — a glimpse of how quantum applications could evolve beyond the lab into commercial use cases.

Still, risks remain. Analysts caution that IBM’s consulting segment could disappoint amid sluggish enterprise IT spending and delayed digital transformation projects. Morgan Stanley expects consulting growth to be flat to slightly negative in the second half, reflecting cautious client budgets. Erste Bank recently downgraded the stock to Hold, citing slower revenue growth relative to peers and limited margin expansion potential. Meanwhile, elevated valuation — about 23x forward P/E — leaves little room for error. In a market where even strong reports from peers like Microsoft or Oracle have triggered “sell-the-news” reactions, IBM must deliver a combination of earnings beat, confident guidance, and visible AI traction to extend its recovery.

For context, IBM’s Q2 report set a constructive tone, with revenue of $17 billion and adjusted EPS of $2.80, both above expectations. Software led the way with 8% growth, while Red Hat accelerated to 14%, and Automation climbed 14%. Infrastructure revenue jumped 11%, supported by the z17 mainframe launch, which helped drive operating margin expansion of 230 basis points. Free cash flow reached $4.8 billion for the first half, prompting management to raise its full-year target to above $13.5 billion. CEO Arvind Krishna’s tone turned from “cautious optimism” in Q1 to outright optimism in Q2, emphasizing growing AI demand and expanding partnerships with Oracle, Salesforce, and Microsoft. Still, analysts at the time noted that consulting remained soft and urged more visibility into software backlog conversion and GenAI revenue contribution.

The Street’s enthusiasm following Q2 was centered on IBM’s improving software mix and early AI traction, while concerns focused on conservative guidance and slower consulting signings. Analysts praised IBM’s disciplined execution and balance sheet strength but sought more detail on how AI adoption would translate into revenue acceleration. That makes tonight’s call critical: investors will expect updated figures on IBM’s $7.5 billion generative AI book of business and any evidence of improved backlog realization in consulting. With the z17 cycle now in full swing, investors will also listen for clues on its longevity and contribution to Q4 momentum.

Technically, the stock is in a delicate position. After rebounding from $272, IBM is hovering around its 20-day moving average and recovering about half its September–October pullback. A clean beat and raised full-year outlook could refocus attention on IBM’s transformation narrative and push shares toward retesting $300. But in the current market, where good news is often met with profit-taking, any hint of deceleration or margin compression could send the stock back toward that $272 support. In short, IBM doesn’t need a good quarter tonight — it needs a convincing one, the kind that shows its AI and quantum bets are more than just future promises.