IBM's Software Growth Sped Up and Its Stock Barely Moved. I'd Start Buying.
2026-10-23 07:41
•Daniel Sparks •The Motley Fool
•••• • Axe Cap view
Why IBM’s Software Growth Is Worth Watching From South Africa
IBM’s accelerating software sales and better cash flow hint at renewed value, even if the market is slow to react.
IBM’s recent report showed software revenue growth speeding up to 9%, with free cash flow jumping 28%, yet the stock barely budged. For South African investors, this is a classic case where the market overlooks solid fundamentals amid macro noise. IBM trades at more reasonable multiples now—just 15 times free cash flow compared to 25 times months ago—suggesting better value. The stronger cash generation is encouraging for dividends and potential buybacks, both of which appeal in our current risk-averse environment. That said, recurring revenue growth remains shy of the 10% sweet spot that typically signals a robust software business transition, so caution is warranted. Also, the rand’s volatility against the dollar means currency swings could quickly amplify or blunt IBM’s South African returns. Despite that, IBM looks worth a cautious buy for global tech exposure without the outsized multiple risk of pure tech disruptors. this is just our opinion and not financial advice
Start buying IBM gradually, keeping an eye on the USD/ZAR rate to manage currency risks. Avoid overcommitment until recurring revenue hits stronger growth.
- IBM
- USD/ZAR
- Recurring revenue growth disappoints
- Rand weakens sharply against USD
6/10
IBM's software segment accelerated to 9% year-over-year revenue growth in Q3 2026, up from 5% in Q2, meeting the analyst's buying criteria. Despite this improvement, the stock barely moved, closing up less than 1%. The company maintained its full-year revenue guidance of 4-5% growth but raised free cash flow expectations. The analyst recommends starting to buy IBM stock at current levels, though recurring revenue growth remains below the desired 10% threshold.
Our take is based on reporting first published by The Motley Fool.