IBM Stock Stagnant Despite Revenue Cut and Rising Margins

IBM's stock has traded flat over the past year despite the S&P 500 returning about 20%. The company's shares now sit near 71% of their 52-week high. In addition to its stagnant stock price, IBM cut its 2026 revenue growth guide after a fiscal Q2 2026 shortfall.

The new revenue growth range is 4% to 5%, down from the 5%-plus management was defending in April. However, the company still expects 100 basis points of operating pretax margin expansion in 2026, matching the roughly one point it guided to in April. This unchanged profit commitment is seen as a positive sign by some analysts.

The operating pretax margin has climbed steadily from 14.4% in 2023 to 15.5% in 2024, 17.1% in 2025, and now sits at 18.4% over the trailing twelve months. This increase is attributed to IBM's productivity program, which includes AI and automation deployed at greater scale across the company, third-party spend reduced, and AI used to make software development more efficient.

However, management acknowledges that the demand question remains unanswered. The software shortfall was limited to a capital-expenditure-sensitive corner of the portfolio: transaction processing revenue fell 9% while data grew 18%, after clients redirected spending toward servers, storage, and memory ahead of expected price increases.