Concerns about the staying power of IBM’s software growth framed BMO Capital’s decision to lift its stock target to $265 after the company topped third-quarter estimates.
BMO raised its target by $35 to $265 from $230 on Thursday, Oct. 22, while keeping its Market Perform rating. Compared with IBM’s $251.46 close on Wednesday, Oct. 21, the new target implied roughly 5% upside.
BMO said IBM benefited from transactions completed during the quarter. The bank questioned whether that contribution could continue without steadier software demand and judged underlying software growth to be short of IBM’s long-term goal. Its analysis also found weakness in Data and Automation after acquisition effects were removed.
IBM’s third-quarter revenue reached $17.1 billion, and adjusted earnings came to $2.95 per share; analysts had estimated $16.82 billion in revenue and $2.86 a share. Sales rose 5% year over year and 6% when measured without currency effects. Software generated $7.8 billion, growing 8%; Transaction Processing expanded 9% and Red Hat 11%, while Automation contracted 3%.
The consulting segment recorded $5.3 billion, little changed from a year earlier, while constant-currency sales advanced 2%. The infrastructure division posted $3.7 billion, 4% above the year-earlier quarter. Within it, distributed infrastructure rose 31%, but IBM Z contracted 20%, and infrastructure support was down 3%. BMO linked some of the infrastructure increase to pricing and sales volume.
IBM’s free cash flow came to $3 billion for the quarter. Its full-year projection put the increase in free cash flow above $1 billion, while the company kept its 2026 constant-currency revenue growth estimate at 4% to 5%. An earlier EconoTimes report on IBM’s quarterly revenue and segment results covered the company’s results.
