IBM stock dropped as much as 6% in after-hours trading on Wednesday following the release of its second-quarter results. While the tech giant beat Wall Street expectations and raised its full-year free cash flow forecast, its software segment missed revenue and margin estimates.
Key Results vs. LSEG Consensus:
- Adjusted EPS: $2.80 vs. $2.64 expected
- Revenue: $16.98 billion vs. $16.59 billion expected
Overall revenue grew nearly 8% year over year—compared to less than 1% growth in the first quarter. Net income rose to $2.19 billion, or $2.31 per share, up from $1.83 billion, or $1.96 per share, a year earlier.
“While not a major factor overall, geopolitical tensions are prompting a few clients to move cautiously,” CEO Arvind Krishna said on a call with analysts. “U.S. federal spending was also somewhat constrained in the first half, but we do not expect it to create long term headwinds.”
IBM’s software revenue rose about 10% to $7.39 billion but came in slightly under the $7.43 billion analyst estimate compiled by StreetAccount. Hybrid cloud, which includes Red Hat, posted a 16% gain. The software division’s gross margin came in at 83.9%, just under the 84.0% consensus.
“Clients reprioritized their spend to the hardware,” Krishna noted.
Consulting revenue increased nearly 3% to $5.31 billion, topping StreetAccount’s $5.16 billion estimate. However, CFO Jim Kavanaugh flagged that “delayed decision making, especially in discretionary projects, as well as prior-year renewals impacted our in-period signings.”
Infrastructure revenue rose 14% to $4.14 billion, beating the $3.75 billion forecast.
During the quarter, IBM unveiled its next-generation z17 mainframe and acquired Hakkoda, a consulting firm specializing in data and AI.
Krishna also shared that IBM’s generative AI business has reached $7.5 billion in total engagements to date, up from $6 billion in April.
IBM reaffirmed its forecast for over $13.5 billion in free cash flow for 2025, in line with its April projection, and continues to expect at least 5% revenue growth in constant currency for the year.
The company also signaled openness to more acquisitions.
“What we’ve seen over the last four months has made us optimistic that we are now in a rational regulation environment where M&A that makes sense will get approved in reasonable timeframes,” Krishna said.
Despite Wednesday’s decline, IBM shares were up 28% year-to-date at the close—well ahead of the S&P 500’s 8% gain over the same period.
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