IBM Recurring Revenue Growth Ignites Hope Amid Struggling Stock

IBM's annual recurring revenue has been a bright spot for the company, despite its recent struggles. According to management, the software annual recurring revenue stood at $24.6 billion in fiscal Q2 2026, an 8% increase from the previous year.

This growth is significant, as software makes up nearly 45% of IBM's total revenue. However, this expansion has not yet translated into a rise in stock price, with IBM shares falling around 10% over the past year, while the S&P 500 gained about 19%.

The main concern for investors is the second quarter results, which fell short of expectations due to clients shifting their spending towards servers, storage, and memory. However, management reassured that this shift is not a lost opportunity, but rather a delay in deals closing on time, with one-third of delayed deals already closed in the first three weeks of the third quarter.

The key will be IBM's fiscal Q3 2026 report, which will show whether the spending pattern has continued to impact recurring revenue growth. If annual recurring revenue continues to grow near 8% and delayed deals keep closing, it could indicate that the second quarter results were a pause rather than a decline in demand.