International Business Machines (NYSE: ) has emerged as an unlikely winner in this year’s artificial intelligence rally, with shares climbing 44.99% year-to-date through November 7, outpacing Nvidia’s (NASDAQ: ) 40.06% gain. The legacy technology giant’s stock reached $312.42 on Wednesday, marking its strongest annual performance in recent memory as investors rewarded its pivot toward enterprise AI and cloud services.
The outperformance comes despite Nvidia’s dominant position in the AI chip market, with the Santa Clara-based company commanding a $4.6 trillion market capitalization compared to IBM’s $292 billion. IBM’s generative AI business surpassed $7.5 billion in July, up from $6 billion in May, signaling rapid adoption of its WatsonX platform among enterprise clients. The Armonk, New York-based company has capitalized on corporate demand for practical AI applications rather than competing in the semiconductor space.
Third-quarter earnings reinforced the momentum, with IBM reporting adjusted earnings of $2.65 per share versus analyst estimates of $2.45. Software revenue climbed 10% year-over-year in the second quarter, while the Red Hat hybrid cloud unit posted 14% booking growth, excluding currency fluctuations. Management raised full-year free cash flow guidance three times this year, reaching $14 billion in October.
Valuation Gap Narrows Between NVDA and IBM
The market’s reassessment of both companies reflects shifting investor priorities as the AI boom matures beyond initial hardware investments. IBM trades at a forward price-to-earnings ratio of 23.92, compared to Nvidia’s 29.94, suggesting investors see more room for multiple expansion in the enterprise software provider. The valuation gap has narrowed considerably from earlier this year when Nvidia commanded significantly higher premiums.
IBM’s $6.4 billion acquisition of HashiCorp, completed in February, strengthened its position in infrastructure automation and hybrid cloud management. The deal brought tools like Terraform and Vault into IBM’s portfolio, enhancing its ability to compete with Amazon Web Services and Microsoft Azure. The company also announced plans to acquire DataStax to bolster its Watsonx AI platform capabilities.
Meanwhile, Nvidia faces headwinds from export restrictions and concerns about AI infrastructure spending sustainability. Recent comments from Trump administration officials about
IBM Outpaces Nvidia in 2025 Rally as Enterprise AI Drives Blue-Chip Revival
