International Business Machines Corp. (IBM) finished buying real-time data company Confluent in March, and the deal is doing its job of adding software growth. The trouble is that it now adds nearly all of it.
Strip out acquisitions, and IBM’s own software sales were flat last quarter. Chief Financial Officer Jim Kavanaugh told analysts as much on IBM’s earnings call on Wednesday, July 22, 2026.
IBM’s software unit brought in $7.76 billion in the second quarter, up 5%, according to its earnings release. That is about 45% of IBM’s revenue for the quarter, so its growth sets the tone for the stock.
Confluent explains most of that gain. IBM closed the deal, which valued Confluent at about $11 billion, on Tuesday, March 17, 2026, according to IBM’s announcement.
IBM’s leadership says the weak spot is narrow. “Our second quarter software shortfall was limited to a capex-sensitive area of the portfolio,” CEO Arvind Krishna said on the call. That means big, one-time licenses paid from equipment budgets, much of it tied to IBM’s mainframes.
Krishna told Fox Business in July that a third of the deals that slipped had already come back. Even so, IBM is leaning on a purchase while it waits for its homegrown business to restart.
Bank of America thinks the wait is worth it. According to the BofA note shared with TheStreet, analyst Wamsi Mohan kept his Buy rating and $280 price target on Thursday, October 15, 2026.
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The report’s title is blunt: “Modestly better 3Q but 4Q has to carry the year.” Mohan’s team calls IBM’s organic software growth, which excludes acquisitions, “improving but below ideal.”
Confluent is carrying IBM’s software growth
BofA estimates IBM’s own software sales will slip about 0.3% in the third quarter, a drop of roughly $23 million. An estimated $350 million from Confluent should still lift total software growth to about 3.5%, according to the note.
That cushion has an expiration date. Acquired sales count as new growth only for the first year, so Confluent’s lift disappears in the second quarter of 2027.
IBM’s own software sales were flat last quarter, leaving its $11 billion Confluent deal to carry growth.SOPA Images / Getty Images
The mainframe slump is a drag IBM can’t buy away
The soft spot is the mainframe, the heavy-duty computer IBM says runs the world’s most critical business transactions. IBM Z revenue fell 42% in the second quarter, according to the earnings release.
IBM expected a dip as it lapped last year’s z17 launch, Krishna wrote in a letter to investors. It did not expect clients to shift so much spending to servers, storage and memory ahead of expected price increases.
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Software rides along with that hardware. IBM’s transaction processing software, which runs on those mainframes, fell 9% excluding currency swings, the release shows. BofA expects that business to shrink about 4% in 2026.
For ticket buyers and bank customers, nothing changes. Ticketmaster, owned by Live Nation Entertainment Inc. (LYV), streams ticket sales in real time on Confluent, according to IBM.
Wall Street is split on how fast IBM recovers
IBM carries a consensus Buy rating from 25 analysts with an average price target of $242.65, according to StockAnalysis. That label hides a close vote: 12 buy ratings, 11 holds and two sells, with holds up from seven in May.
BofA raised its target to $330 in early July, expecting IBM to lift its outlook. Instead, IBM warned investors on Tuesday, July 14, 2026, that numerous large deals had failed to close on schedule, according to Krishna’s letter to investors. Those delays drove most of the shortfall in software and mainframe sales, he wrote.
Preliminary revenue of $17.2 billion landed about $660 million below forecasts, and shares fell 25% that day, according to SiliconANGLE.
BofA cut its target to $280 the same day, according to the note. That still tops the average by about 15% and leads the latest calls:
Buy, $280 target, Bank of America, Wamsi Mohan, Thursday, October 15, 2026.
Buy, $245 target, Citigroup Inc. (C), Fatima Boolani, Thursday, October 15, 2026.
Buy, $270 target, Royal Bank of Canada (RY), Matthew Swanson, Tuesday, October 13, 2026.
Hold, $236 target, UBS Group AG (UBS), David Vogt, Tuesday, October 13, 2026.
IBM shares rose 2.7% on the day the note landed, according to StockAnalysis data, though several firms weighed in. The stock still trades about 30% below the top of its 52-week range, which runs from $199.19 to $332.46.
Bank of America is betting on a better 2027
IBM reports third-quarter results on Wednesday, October 21, 2026, but the bigger test comes later.
BofA’s estimates imply the fourth quarter will deliver about 38% of IBM’s 2026 adjusted earnings. It also carries more than half of the year’s free cash flow, the cash that pays IBM’s dividend.
Heavy fourth quarters are normal for IBM, which earned 39% of its 2025 adjusted profit in that stretch, according to the bank’s data. After a guidance cut, there is less room for error.
BofA expects sales growth to pick up in 2027 as IBM tilts toward more profitable software, widens margins and piles up cash. It also counts quantum computing as a long-term bonus.
The bear case runs through execution and tighter corporate tech budgets, two of BofA’s listed risks. Yet its own estimates show earnings growth slowing to about 5% in 2027 from 7% this year. Its target also assumes 19 times expected 2027 free cash flow, versus a historical median of 13, the note shows.
IBM has pulled this off before. Red Hat, bought in 2019, now counts as homegrown and grew 11% last quarter, according to the earnings release. Confluent has until next spring to show it can follow the same path.
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