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IBM (IBM) shares have tumbled despite the company posting better-than-expected earnings. Q3 EPS came in at $2.65 and beat analyst estimates of $2.44. Revenue of $16.33 also beat estimates of $16.03, up 9% year-over-year.

These numbers point to a strong beat that would’ve also translated into a healthy increase in the stock price. However, this wasn’t the case due to constant currency revenue growth guidance coming in at 5%, 2% slower than the current quarter. IBM did counter this by raising its free cash flow guidance to $14 billion.

The primary issue for Wall Street is that IBM’s Red Hat cloud computing unit is showing signs of slowing growth. It grew 14% year-over-year in Q3, down from 16% in the previous quarter.

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Why IBM is still a long-term buy

The stock has more than doubled since 2022 as growth accelerated and the cloud computing division started winning from AI. These wins haven’t translated yet into accelerating double-digit revenue growth, but can in the future. Two weeks ago, IBM signed a deal with Antropic to integrate Claude models with its software. It won’t lead to Red Hat’s growth being boosted, but it’s a step in the right direction.

Moreover, AI cloud computing isn’t the only feather in IBM’s hat. The biggest long-term driver could be quantum computing, something that even the government is now purportedly interested in taking a direct stake in.

IBM has been the needle-mover in quantum computing and is the most likely to succeed, as it has deep pockets and was the pioneer of the industry.

I expect the coming quarters to remain positive for IBM. And in the long run, IBM’s expertise with both data centers and quantum computing can make it a hot growth stock if the themes succeed.

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