IBM is in danger of missing average Wall Street estimates for its second-quarter revenue as the weaker euro dents sales in Europe, which counts for about 30 percent of its revenue.

While strong growth in software and services may bolster International Business Machines Corp's second-quarter profit, the results on Monday are unlikely to trigger a share rally as investors hunt for higher-growth stocks such as Apple Inc and VMware Inc , analysts said.

We're into one year of a three-year tech recovery cycle, so I want to 'overweight' smaller and faster-growing companies -- the speed boats, not the big tanker ships like IBM, said Gleacher & Co analyst Brian Marshall.

You have faster growth opportunities from guys like Apple, VMware, NetApp and F5 Networks , he said.

The average analyst forecast calls for IBM's second-quarter revenue to have grown 4 percent to $24.20 billion, according to Thomson Reuters I/B/E/S. (See http://link.reuters.com/zuj97m for comparison to other companies mentioned in this story.)

Some analysts said that average estimate did not sufficiently reflect a 9 percent rise in the dollar against the euro during the quarter.

Bernstein Research's Toni Sacconaghi recently lowered his revenue estimate to $23.8 billion from $24.3 billion, taking into account the euro's decline. Stifel Nicolaus analyst David Grossman also forecast $23.8 billion.

The U.S. dollar has appreciated 2 percent since the company provided guidance, which we estimate has converted a 2 to 3 percent revenue tailwind into a 60 basis point headwind and a modest EPS drag, Grossman said.

Europe counts for around 30 percent of IBM's revenue, although not all contracts in the region are set in euros.

The weaker euro has been an issue for many large U.S. companies and several, including General Electric Co , have reported higher-than-expected profits but flat or disappointing revenues.

MARGIN GROWTH

Currency hedging and higher margins are expected to limit the impact of currency on IBM's bottom line. Quarterly earnings per share are seen rising to $2.58 from $2.32 a year earlier.

The margin growth is led by IBM's shift over the past decade to more profitable software and technology services, including IT consulting, from increasingly commoditized hardware products.

IBM has said it plans to double its profit by 2015 as it further expands services and software.

Sacconaghi, despite lowering his revenue forecast, rated IBM an outperform, citing low valuations as well as the company's ability to continue delivering strong EPS growth.

IBM shares have barely budged over the past three months, and Sacconaghi noted that IBM now traded at a 10 percent discount to its historic valuation as well as against peers.

We view this as attractive given our belief that IBM is a better company than it has been historically, as it has fundamentally reshaped its portfolio and has continued opportunities for further margin expansion in software and services, he said in note to clients.

And while Gleacher's Marshall was slightly more bearish with a neutral rating, he said IBM was attractive long-term.

The key with IBM is that they have more or less an annuity stream. The vast majority of their revenue and profits come from services and software. That's sticky, high-visibility revenue, he said.

Investors will also be watching to see whether IBM raises its annual EPS forecast of at least $11.20, which some see as conservative. Most analysts forecast it would not, due to uncertainties about Europe's economy and worries of a double-dip in technology spending.

(Reporting by Ritsuko Ando, editing by Matthew Lewis)

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