IBM Shares Fall on Slower Cloud Growth and Investor Jitters

NEW YORK, October 23, 2025 — International Business Machines Corp (IBM) shares tumbled nearly 7% in premarket trading on Thursday after reporting slower growth in its core cloud software division, triggering anxiety among investors about Big Blue’s ability to maintain momentum in the fast-expanding AI and cloud computing markets.

The company’s hybrid cloud business, centered around its Red Hat unit, grew 14% year-over-year, down from 16% growth in the previous quarter. The deceleration raised fresh concerns that IBM may be struggling to capture the explosive demand for cloud and AI infrastructure now driving technology sector valuations globally.

“IBM’s software performance and outlook tend to carry more weight than the rest of the business due to their outsized earnings contribution,” analysts at J.P. Morgan said in a client note. “With peak mainframe growth expected to taper next year, robust software expansion will be essential to sustain consolidated growth.”

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Investors Reassess IBM’s Cloud and AI Ambitions

IBM has positioned itself as a key player in hybrid cloud computing, enabling enterprises to run workloads across private data centers and public cloud environments. However, investor sentiment has cooled following the latest earnings report, as IBM faces intensifying competition from Amazon Web Services (AWS), Microsoft Azure, and Google Cloud.

Despite the slowdown, IBM’s shares had climbed roughly 30% in 2025 prior to Thursday’s drop — buoyed by optimism around its AI integration initiatives and enterprise software expansion. The stock currently trades at a 12-month forward price-to-earnings ratio of 23.85, compared with 17.95 for Accenture (ACN.N), indicating that investors had already priced in a strong growth narrative.

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Strong Mainframe Sales and Solid Financial Outlook

The weakness in cloud software was partially offset by a 17% increase in infrastructure revenue, totaling $3.56 billion for the quarter, driven by robust demand for IBM’s z-series mainframe systems.

This performance helped IBM beat Wall Street’s profit and revenue expectations for the third quarter and raise its full-year revenue growth forecast to above 5% in constant currency. The company also reaffirmed its free cash flow guidance of approximately $14 billion for 2025.

“IBM remains well-positioned financially, and its mainframe business continues to deliver,” said Evercore ISI analysts, adding that mergers and acquisitions could become a meaningful growth driver in the coming quarters.

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M&A Strategy Could Drive Next Growth Wave

Analysts noted that IBM’s strong cash flow and solid balance sheet provide flexibility for further strategic acquisitions aimed at bolstering its cloud and AI capabilities.

The company recently completed its $6.4 billion acquisition of HashiCorp, a leading infrastructure automation software provider. The deal is expected to enhance IBM’s multicloud orchestration tools and improve its competitiveness against hyperscale cloud rivals.

“M&A remains an underappreciated lever for IBM,” Evercore ISI wrote. “Integration of the HashiCorp deal could be a material catalyst for the company’s next growth phase.”

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Cloud Slowdown Signals Need for AI-Focused Execution

IBM’s latest earnings underscore the broader industry challenge: even as AI adoption accelerates, cloud growth rates are normalizing after years of pandemic-era expansion.

Analysts suggest that IBM must now demonstrate how its AI-powered hybrid cloud strategy translates into consistent software growth, especially as enterprises become more selective in technology spending.

“The real question for IBM is execution — how effectively it can scale its AI offerings and sustain hybrid cloud momentum,” said one industry observer.

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Key Takeaways

• IBM shares fell nearly 7% following slower growth in its cloud software business.
• Hybrid cloud (Red Hat) growth slowed to 14% from 16% the previous quarter.
• Mainframe infrastructure revenue rose 17%, helping IBM beat earnings forecasts.
• IBM raised full-year revenue guidance to above 5% and reaffirmed $14 billion in free cash flow.
• The $6.4 billion HashiCorp acquisition positions IBM to strengthen its AI and automation portfolio.