IBM stock experienced its worst drop in years when it released its second quarter results, which came short of expectations. It dropped to $211 immediately after earnings and then plunged to $197 a few days later. The company will now be in the spotlight as it releases its earnings report on Tuesday.
IBM earnings to provide hints on its growth
The last earnings report by IBM sent shockwaves in Wall Street as the stock imploded. This decline happened as the company admitted that demand for its products, especially software remained under pressure.
The results showed that its software revenue rose by just 5% to $7.8 billion, driven by data and Hybrid cloud, and offset by a drop in transaction processing, which fell by 8%. This weakness was notable as the division accounts for about 45% of its revenue.
IBM’s consulting revenue was flat at $5.3 billion, while its infrastructure segment made $3.8 billion, down by 7% from a year earlier. In all, the company blamed its weak performance to the fact that many customers prioritized hardware purchases. Arvind Krishner, the CEO said:
“Many clients redirected spending toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.”
Therefore, investors hope that the company turned its business around in the third quarter, with its software sales rising. However, the most likely scenario is where the software business slowed since the prices of memory, server, and storage solutions rose in the last quarter.
Yahoo Finance data shows that analysts expect its revenue to come in at $16.8 billion, up by just 3% from the same period last year. Its earnings-per-share is expected to jump to $2.87 from $2.65 in the third quarter of last year.
Will IBM stock rise or fall after earnings?
The question among investors is whether IBM stock will drop as it did when it released its Q3 earnings report.
It is usually hard to make these predictions. The options market, however, is pricing in substantial volatility after its earnings. The implied volatility has jumped to 75%, more than double the historical average of 30%.
Most of the calls are at $240, slightly higher than where it is today. On the other hand, most of the puts are at $215, 7.56% below the current level.
IBM stock chart | Source: TradingView
Technically, the stock is sending mixed signals. On the daily chart, we see that the stock has remained inside a narrow range in the past few months. It has struggled to fill the fair value gap created after the last earnings report.
Herefore, a better-than-expected report will likely lead to a bullish breakout as investors start to reset their expectations. Such a move may push it to the resistance at $250. On the other hand, another weak report will push it to $220 and below.
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