IBM Shares Fall on Slower Cloud Growth

IBM (NYSE: IBM) shares extended their post-earnings decline into Thursday morning, falling 7% to around $264.40, as investors reacted to disappointing growth metrics in the company’s core hybrid cloud and software segments.

While IBM delivered a modest headline beat on total revenue, the details of its cloud performance drew negative attention from analysts and traders.

Hybrid Cloud Growth Misses Expectations

IBM’s hybrid cloud division, which includes Red Hat, posted 14% revenue growth in Q3, according to Bloomberg —
below Wall Street’s expectation of 16% and slower than the previous quarter’s pace.

The division, considered central to IBM’s AI and hybrid infrastructure strategy, is viewed as a key barometer for long-term growth. The slowdown sparked concerns that IBM’s momentum in enterprise cloud adoption may be easing amid rising competition from Microsoft Azure and Amazon Web Services.

Weakness in Transaction Processing Software

Adding to investor anxiety, transaction processing software sales declined 1% year-over-year, signaling a softening demand environment for legacy enterprise systems.

Even though IBM’s overall software revenue rose 10% to $7.2 billion, in line with forecasts, the miss in its highest-margin units has led analysts to temper near-term growth expectations.

Investor Sentiment Turns Cautious

Despite IBM’s ongoing progress in AI-enabled services and automation tools under its Watsonx brand, investors appear focused on slowing Red Hat growth — once a key acquisition driver following its $34 billion purchase in 2019.

Analysts warn that IBM must reignite momentum in its hybrid cloud platform to maintain investor confidence as AI infrastructure spending accelerates elsewhere in Big Tech.

Market Reaction

IBM shares are now down over 7% premarket, adding to declines from the prior session. Traders cited:

Slower Red Hat integration revenue
Flat legacy software sales
Concerns over competitive positioning in hybrid cloud and AI infrastructure markets