IBM (IBM) - Get Report reports its second-quarter fiscal 2016 earnings results Monday after the close. I think the quarter will show modest improvement -- and investors are betting that last quarter was the bottom.

IBM has been under pressure for a while. Back on April 18, first-quarter earnings fell for the 17th quarter in a row. Revenue of $18.6 billion was down 4.6% and earnings were $2.09 per share, down 14%.

Ouch!

While earnings are expected to fall again, the first quarter may have been the bottom. Revenue declined 5% in 2013, 7% in 2014 and 12% in 2015, mostly reflecting a strong dollar, divestitures and aggressive cost reductions. The company continues to shift its business into growth areas such as artificial intelligence, data analytics, cloud computing and security.

Analysts expect second-quarter revenue of $20.03 billion, down 3.8%. Earnings of $2.89 per share are expected to be down 24% from last year.

For the year, management sees earnings of $13.50 per share, with the second half expected to deliver 60% of the total.

IBM has been aggressively executing on its "strategic imperatives." So far, IBM has acquired 11 companies, many of which represent new growth areas for the company. These acquisitions are estimated to add between $350 million and $400 million in revenue in the second quarter.

Despite the additional revenue, it is unlikely the new revenue will be enough to offset the decline in the company's other businesses, especially its middleware business. But aggressive cost cuts will probably be enough to increase operating margins to 18.9%, compared to 17.5% last year.

The stock is up 16% year to date. At the current price, the stock is trading at nearly 12 times this year's earnings estimates and 11 times next years estimate of $14.11.

For the stock to move higher, investors need confirmation that the company's strategic imperatives remain on track. The 3.5% dividend and share buybacks should support the stock through this transition.

I think investors are ignoring valuation and are betting IBM can steer into growth businesses before the bottom falls out of its traditional middleware business, which is being eaten alive by the shift to cloud computing.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.