IBM (NYSE:IBM) just signed a $240 million deal with Together AI to build an Nvidia (NASDAQ:NVDA)-powered AI inference cluster on IBM Cloud, announced August 11. Together AI’s chief revenue officer Kai Mak says demand is so strong the cluster will sell out two to three months before it even goes live. That kind of confidence from a partner is a good sign for a company whose shares have been under pressure this year. But a single deal, however sizable, still has to answer the bigger question: can IBM turn scattered growth pockets into a real growth story?
Bull Case: A Fresh Bet On AI Demand
The agreement covers an initial cluster built with roughly 2,000 Nvidia Blackwell 300 chips, using the HGX B300 systems and Spectrum-X Ethernet networking, located in the US. Together AI’s platform lets businesses run open-source models like DeepSeek, MiniMax and Kimi more cheaply than closed alternatives, and the startup was valued at $8.3 billion in July. Mak told Reuters the company expects full offtake well before the cluster is ready for service, a sign that inference, not just training, is becoming a serious growth lever for IBM Cloud.
That momentum echoes what is already showing up in IBM’s numbers. Software revenue rose 5% year-over-year in the most recent quarter, with Red Hat up 11%, the clearest evidence that IBM’s shift toward higher-margin, recurring business lines is working. Longer term, CEO Arvind Krishna has said quantum computing could have a “measurable impact” on IBM’s top and bottom lines as soon as 2028 or 2029, and he has pointed to the end of the 2030s as when that opportunity could be worth a trillion dollars. Add in a dividend raised for 31 straight years and covered about 2.5 times by expected free cash flow, and the long-term case has more legs than the stock price suggests.
Bear Case: The Growth Problem The Deal Doesn’t Solve
None of that changes what happened in the quarter ended June 30, 2026: revenue grew just 1% to $17.2 billion, prompting IBM to cut its full-year guidance from more than 5% growth to a range of 4% to 5%. Consulting revenue was flat, infrastructure fell 7%, and the IBM Z mainframe line dropped 42%, the kind of decline that offsets a lot of AI headlines. Even the software growth investors lean on is decelerating, down from 11% growth in the prior quarter to 5% now. The dividend tells a similar story of caution: April’s increase was a single penny per quarter, from $1.68 to $1.69, hardly the raise of a company brimming with confidence. Shares have fallen 33% from their 52-week high of $332.46, a slide that began after preliminary numbers badly missed expectations, and even after recovering some ground, the stock remains down 19% for the year.
What The Market Is Signaling
Hedge fund ownership fell from 63 funds to 59 in the most recent quarter, a modest pullback suggesting some institutional investors are trimming rather than piling in. Short interest sits at just 2.62% of float, which points to little organized skepticism about the stock. IBM trades at a forward price-to-earnings ratio of 19.12 as of August 12, a multiple that assumes moderate growth rather than a rapid turnaround.
Where This Leaves Investors
The Together AI deal shows IBM Cloud can win real infrastructure business in the AI inference race, and the software segment and quantum roadmap give patient investors something to hold onto. Still, the mainframe decline, flat consulting revenue, and a guidance cut earlier this year show the core business isn’t firing evenly yet.
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