IBM Beat Sales and Earnings Estimates. Here's Why Its Stock Is Falling Anyway

Core Insights - IBM reported better-than-expected revenue and profit for the third quarter, with adjusted earnings of $2.65 per share, a 15% increase year-over-year, and revenue of $16.3 billion, up 9% from the previous year [3] - Despite exceeding expectations, IBM shares fell by 1.5% as investors expressed concerns over the slowdown in the company's software business, particularly in the Hybrid Cloud unit [2][3][5] - The market's reaction highlights the high expectations for tech companies, especially with major players set to report earnings soon, which could significantly impact market indices [4][6] Financial Performance - Adjusted earnings per share were $2.65, surpassing the consensus estimate of $2.44 [3] - Third-quarter revenue reached $16.3 billion, exceeding expectations and reflecting a 9% increase [3] - IBM raised its full-year revenue and free cash flow forecasts, indicating positive outlook despite the stock's decline [3] Business Segment Analysis - The Hybrid Cloud unit's sales growth decelerated to 12% in constant currency, down from 14% in the second quarter [5] - Transaction processing revenue declined by 3% for the second consecutive quarter, raising concerns among investors [5] Market Reaction - Despite a solid quarter, IBM shares experienced a decline, with a drop of as much as 8% earlier in the trading session [3][7] - Analysts from Bank of America maintained a "Buy" rating on IBM, citing strong free cash flow and a shift towards higher-margin software [6][7] - The overall market sentiment remains cautious as investors await earnings reports from other major tech companies, which are trading at or near record highs [6]