IBM Stock Fell 22% in the Third Quarter. History Says It's Usually Higher a Year Later.

Shares of International Business Machines (NYSE:IBM) finished the third quarter around $220, off about 22% from where they started it. It was IBM's worst quarter since the last quarter of 2018, when the stock lost 25%.

Most of the loss came in one session. On July 14, shares sank 25% after IBM posted preliminary second-quarter results that CEO Arvind Krishna called "disappointing" in a letter to investors. That was the stock's worst day on record, even worse than its plunge of around 24% on Oct. 19, 1987.

But big quarterly drops aren't new to IBM. Using daily closing prices going back to 1962, I find 13 quarters before this year in which the stock slid 18% or more. A year after each one ended, shares were higher in 11 cases.

A 14th was in the first quarter of 2026, when the stock lost 18%. That one still has six months to go, and so far, it doesn't fit the pattern.

Image source: Getty Images.

Higher a year later

Some rebounds were big. After IBM dropped 28% in the fourth quarter of 2008, during the financial crisis, shares rose around 55% in the next 12 months. And after a 25% loss in late 2018, the stock climbed about 18% in 2019. For all 13 cases, the median one-year gain was around 18%.

Of course, higher doesn't mean recovered. In just three of the 13 cases (late 2000, the third quarter of 2002, and late 2008) was the stock above where the rough quarter began a year later.

The two exceptions were 1973 and 2001. Shares slid around 19% in the third quarter of 1973 and then shed another 38% over the next year. In the third quarter of 2001, they sank 19% and then dropped another 36%.

IBM mostly moved with the market

Both exceptions were in bear markets. In the 12 months after each one, the S&P 500 (SNPINDEX:^GSPC) shed around 41% and 22%, respectively.

The rest of the history lines up with the market, too. In the nine cases where the S&P 500 rose over the following year, IBM rose as well, every time.

Notably, this includes the fourth quarter of 1992, when IBM's problem was its own. The company posted a record $5.5 billion loss for that quarter, yet the stock ended the next year around 12% higher.

But when the market fell, IBM split the four cases evenly, gaining after 2000 and the second quarter of 2002 but sliding after 1973 and 2001.

Put another way, IBM's rebounds after big quarterly drops have mostly come alongside a rising market. This makes the record less helpful for judging IBM's business.

Is this year's first drop different?

IBM's 18% drop in the first quarter of 2026 included a 13% fall on Feb. 23, when AI firm Anthropic said its Claude Code tool could speed up the work of modernizing COBOL, the decades-old programming language behind many mainframe applications.

Early on, the stock did what history suggested. On June 2, it closed at a record high of $329.23. Then came July. As I write this, shares trade near $226, about 7% below where they finished the first quarter, while the S&P 500 is up about 17% over the same stretch.

The market has done its part this time, but IBM hasn't.

IBM's software revenue climbed 14% year over year in the fourth quarter of 2025. Growth then slowed to 11% in 2026's first quarter and 5% in its second. Total second-quarter revenue rose just 1% year over year. Management also lowered its full-year forecast to constant-currency revenue growth of 4% to 5%, down from more than 5% in April.

Software is arguably the segment IBM's growth case leans on most, and a rising market can't fix a slowdown there.

IBM's third-quarter report is penciled in for Oct. 21, according to the company's investor relations site. For this drop to fit the old pattern on IBM's own merits, I think the report has to show software growth turning back up.

The stock's valuation isn't the problem.

Shares trade at around 17 times 2027's expected earnings, about 30% under the price-to-earnings ratio they had at June's record, using the same estimates.

Will IBM stock be higher a year from now? Possibly, if the overall market keeps climbing. But the first-quarter case shows a rising market isn't always enough when the trouble is IBM's own. I'd want to see software growth rebound before buying shares.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.