International Business Machines (NYSE: ) has emerged as an unexpected winner in this year’s artificial intelligence rally, with shares climbing 44.99% in the year to November 7, leading NVIDIA (Nasdaq: ) to gain 40.06%. Legacy technology giant Hyant’s stock hit 2,312.42 on Wednesday, marking its strongest annual performance in recent memory as investors rewarded its pivot to enterprise AI and cloud services.
The performance comes despite NVIDIA’s dominant position in the AI chip market, with the Santa Clara-based company commanding a market capitalization of $4.6 trillion compared to IBM’s $292 billion. IBM’s generative AI business surpassed $7.5 billion in July, up from $6 billion in May, indicating rapid adoption of its Watson X platform among enterprise clients. Armonic, a New York-based company, has tapped into corporate demand for practical AI applications rather than competing in the semiconductor space.
Third-quarter earnings bolstered that 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 Red Hat’s hybrid cloud unit posted a 14% increase in bookings, excluding currency fluctuations. Management raised full-year free cash flow guidance three times this year, reaching $14 billion in October.
The evaluation gap between NVDA and IBM is narrow
The market’s reevaluation of both companies reflects changing investor preferences 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 expansions in the enterprise software provider. The valuation gap has narrowed considerably since earlier this year when NVIDIA commanded a significantly higher premium.
Hashcorp’s $6.4 billion acquisition of IBM, 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, increasing its ability to compete with Amazon Web Services and Microsoft Azure. The company also announced plans to acquire Datastacks to bolster the capabilities of its Watson XA platform.
Meanwhile, NVIDIA faces headwinds from export restrictions and concerns about the sustainability of AI infrastructure spending. Recent comments by Trump administration officials about “no federal bailouts” for AI companies contributed to a 3.65 percent drop in NVIDIA shares on Nov. 7. The chipmaker’s figure of 53.81 reflects back-to-back expectations that leave little margin for disappointment.
The contrasting fortunes highlight the different ways to monetize artificial intelligence, with IBM focusing on enterprise implementations while NVIDIA dominates the underlying hardware infrastructure. Both companies are central to the AI ecosystem, but investors are flocking to companies offering immediate business applications rather than pure infrastructure plays.
Challenges remain for both tech giants
Despite its strong performance, IBM faces persistent challenges in legacy businesses that could limit future growth. Infrastructure revenue fell 4 percent in the first quarter, with mainframe IBM Z sales falling 14 percent as enterprises move to cloud-based solutions. The consulting division, which represents a key revenue stream, reported flat year-over-year performance in the first and second quarters of 2025.
The company announced workforce reductions as part of its ongoing turnaround at the end of 2025, raising questions about execution risks and employee morale. Competition in cloud services from Microsoft (Nasdaq: ), Amazon (Nasdaq: ), and Google (Nasdaq: ) is fierce, with these tech giants having greater resources and wider market reach. Analysts at several firms have suggested that IBM’s stock could be fully priced after its 45% rally, potentially limiting near-term upside.
Nvidia faces its own hurdles despite maintaining AI chip market leadership. Regulatory uncertainty surrounding semiconductor exports to China threatens an important growth market, while rivals Intel and Advanced Micro Devices intensify pressure on the data center GPU segment. Questions remain about whether enterprise AI adoption can sustain the current pace of chip purchases, especially as companies digest the massive infrastructure investments of the past two years.
Both companies must navigate a concentrated AI landscape where investor sentiment can change rapidly based on quarterly results and regulatory developments. The stability of IBM’s performance will depend on continued enterprise AI adoption and the successful integration of recent acquisitions, while NVIDIA’s momentum depends on maintaining its technological edge and diversifying revenue streams beyond data center sales.
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This article was written by Shane Nagel, editor-in-chief of Token.