Shares of International Business Machines (IBM -1.01%) are rallying after the company reported third-quarter 2022 earnings. The company slightly beat both revenue and earnings expectations. So far in 2022, IBM's total return (which includes dividend payments) is down less than 5%, compared to a negative 21.5% return for the S&P 500. This is a sleepy tech stock putting up pedestrian growth numbers, but that's OK in this bear market.

But how pedestrian is IBM exactly? Well, excluding the effects of a record run-up in the U.S. dollar, IBM actually grew at a fairly brisk pace. Here's how that happened.

Collateral damage from record interest rate hikes

The U.S. Federal Reserve has been hiking interest rates at a record pace this year in an attempt to get inflation under control. A side effect of those increases is a strengthening U.S. dollar. Against a basket of other currencies (like the euro and the yen), the dollar has gained a whopping 17% in value in 2022.  

If you're an American tourist overseas, that means your dollars go further. But if you're an American multinational organization that earns revenue outside of the States, this isn't such a great thing. A strengthening dollar means lower value for international sales when that currency is converted back into dollars. 

IBM is a multinational business, so it's dealing with the dollar's record bull run. The company reported actual revenue growth of 6% in Q3. However, excluding the effects of currency exchange rates, revenue would have grown 15%. If nothing else, this does illustrate the wisdom in IBM's decision to spin off its managed infrastructure business last November into the separate entity now known as Kyndryl. The new IBM is more focused on hybrid cloud software and services and is actually growing again after a decade of struggle. Of course this change has come just in time for the Federal Reserve and the dollar to conspire against it.

A strong dollar could be even worse for developing countries that rely on outside investment, which can, in turn, hurt the global economy. This is one of the reasons economists and business leaders say a recession is possible in 2023. That could be a further drag for IBM next year, but that's a story for later.  

Is IBM a hot growth stock?

Excluding effects from currency exchange rates, IBM would appear to be a hot growth stock now. But not so fast. Bear in mind IBM is getting some extra benefit from the Kyndryl spinoff. As part of the business separation, IBM and Kyndryl entered into a two-year agreement in which IBM would provide business services to assist Kyndryl in transitioning to a stand-alone business. Year one of this deal is nearly complete, and Kyndryl said in its filings it is working to decrease its reliance on IBM going forward.

What does that mean for IBM? A key growth driver for the company could be nearing its end. Of IBM's 15% Q3 2022 growth (excluding exchange rates), the company said 5 percentage points of expansion were attributable to services provided to Kyndryl. So backing out the Kyndryl transition, IBM grew 10% excluding currency exchange rates.

Of course, that doesn't mean Kyndryl will eventually stop using IBM altogether. However, don't count on this big boost lasting forever. IBM is still primarily an income stock, which means you shouldn't factor in massive growth potential as part of your investment thesis when considering IBM stock.

Through the first three quarters of 2022, IBM has generated $5.15 billion in free cash flow -- or $4.13 billion when further subtracting the $1.02 billion the company has spent on acquiring small tech consulting companies this year. Dividends, which are supported by free cash flow, cost IBM $4.45 billion so far this year. IBM stock currently yields 5.4% a year, and management has said it is committed to its current payout rate. But keep an eye on the free cash flow situation going forward. It would need to improve if IBM wants to grow its dividend payout over time.

Overall, though, Q3 was a solid quarter for IBM despite the U.S. dollar wiping out a significant amount of its growth. Expect the dollar's run to continue impacting the company and other tech stocks well into 2023. Shares of IBM trade for 15 times trailing-12-month free cash flow. It's a decent income stock pick, but not necessarily a fantastic value right now given the headwinds the company is facing in the coming quarters.