Strong Quarterly Results Overshadowed by Market Caution
IBM delivered second-quarter results that exceeded Wall Street expectations, yet shares dropped as much as 6% in after-hours trading. The dip reflects lingering concerns around enterprise IT spending and geopolitical tensions, despite the company’s nearly 8% year-over-year revenue growth and improved profitability.
Adjusted earnings per share hit $2.80, ahead of the $2.64 consensus estimate, while revenue reached $16.98 billion, surpassing the expected $16.59 billion. Net income climbed to $2.19 billion, up from $1.83 billion a year earlier. The company’s growth sharply rebounded from just under 1% in the previous quarter.
Mixed Software Performance, Hardware Outshines
IBM’s software segment grew 10% to $7.39 billion but slightly missed analyst projections of $7.43 billion. Hybrid cloud services, including Red Hat, showed a robust 16% growth. The software division’s gross margin held firm at 83.9%, just shy of the 84% forecast.
CEO Arvind Krishna noted that some clients reallocated spending from software to hardware, helping infrastructure revenue jump 14% to $4.14 billion, outperforming StreetAccount’s $3.75 billion estimate. The recently launched z17 mainframe contributed to the hardware rebound.
Consulting and AI Business Continue to Expand
Consulting revenue also showed strength, rising 3% to $5.31 billion, beating expectations. However, IBM’s CFO Jim Kavanaugh cited delayed decision-making and renewal cycles as headwinds that affected near-term contract signings.
IBM’s generative AI business has now reached $7.5 billion in total bookings, up from $6 billion in April. The company continues to expand its AI consulting portfolio, recently acquiring Hakkoda, a firm specializing in data and artificial intelligence solutions.
Outlook Reaffirmed as M&A Climate Improves
IBM maintained its guidance for more than $13.5 billion in free cash flow for 2025 and reaffirmed its projection of at least 5% annual revenue growth at constant currency. Krishna expressed confidence in a more stable regulatory environment for mergers and acquisitions, hinting at continued deal-making to support long-term expansion.
Despite the post-earnings drop, IBM shares have gained 28% year to date, significantly outperforming the broader S&P 500’s 8% rise. Investors appear cautious about near-term spending trends, but the company’s fundamentals and AI momentum remain strong drivers heading into the second half of the year.
