IBM's Q2 Earnings Beat Estimates, Driven by AI Mainframe Sales, but Software Segment Disappoints

IBM results beat estimates on AI mainframe refresh, consulting revival

July 23 (Reuters) - IBM (IBM.N), opens new tab beat Wall Street estimates for second-quarter revenue and profit on Wednesday, helped by renewed sales in its mainframe business as artificial intelligence upgrades spurred demand for the systems, which are capable of processing vast amounts of data. Clients have focused on investing in AI infrastructure expansion as macroeconomic uncertainty and ongoing trade negotiations prompt businesses to prioritize spending on the booming technology. Shares of the company fell 4% in extended trading, after a nearly 30% rise this year. "All of us are still operating in a very dynamic macroeconomic environment," finance chief Jim Kavanaugh told Reuters. Sales of IBM's latest mainframe -- powered by chips specialized for AI applications -- kicked off in June, boosting second-quarter revenue following a three-year cycle for the system's previous version. The Big Blue reported revenue of $16.98 billion for the June quarter, up nearly 8% from last year and beating the analysts' average estimate of $16.59 billion, according to data compiled by LSEG. The infrastructure segment, which houses its mainframe, reported revenue of $4.14 billion, beating estimates of $3.81 billion. IBM did not provide a forecast for the third quarter, after it broke tradition in April and issued a one-off quarterly outlook to give investors more clarity at a time when U.S. President Donald Trump's global tariffs were first going into effect. "That quarterly guidance was really driven by the unprecedented volatility of the foreign exchange markets and what we were dealing with 90 days ago," Kavanaugh said. "What is different over the past 90 days -- the FX world is kind of stabilized ... so we reverted back to our standard practice." Sales in the consulting business also grew 3% in the quarter to $5.31 billion, ending five consecutive quarters of revenue declines. Businesses are increasingly turning to IBM's consulting business as they seek expertise on integrating AI products and conducting operations in a rapidly evolving economic environment. Its "AI book of business," which combines bookings and actual sales across various products, grew to $7.5 billion, up $1.5 billion from the previous quarter. Second-quarter adjusted earnings of $2.80 per share also beat estimates. Reporting by Arsheeya Bajwa in Bengaluru; Editing by Alan Barona Our Standards: The Thomson Reuters Trust Principles., opens new tab

IBM's software sales disappoint, eclipsing AI mainframe revival

July 23 (Reuters) - IBM (IBM.N), opens new tab beat Wall Street estimates for second-quarter revenue and profit on Wednesday, but lower-than-expected sales in its mainstay software segment overshadowed a renewal in demand for the mainframe business spurred by AI upgrades. IBM's shares fell 5% in extended trading, after a nearly 30% rise this year driven by investors betting on prioritized software spending as businesses navigated macroeconomic uncertainty and ongoing trade negotiations. "You're seeing the stock pull back, because there's just not a lot of room to miss," said Dan Morgan, senior portfolio manager at Synovus Trust, which holds shares in IBM. "This would be more evidence that software is not growing at the pace that the street was expecting." IBM's software segment, which has traditionally been a bright spot, reported sales of $7.39 billion, missing estimates of $7.41 billion. Still, the Big Blue reported revenue of $16.98 billion for the June quarter, beating analysts' average estimate of $16.59 billion, according to data compiled by LSEG. Adjusted earnings of $2.80 per share also beat estimates. The infrastructure segment, which houses its mainframe, reported revenue of $4.14 billion, beating estimates of $3.81 billion. Sales of IBM's latest AI-specialized mainframe kicked off in June, boosting second-quarter revenue. Its "AI book of business," which combines bookings and actual sales, grew to $7.5 billion, up $1.5 billion from the previous quarter. Investors might be unimpressed, however, as the book is "cumulative, not revenue, and lacks granularity," said Michael Ashley Schulman, Running Point Capital's chief investment officer. IBM did not provide a forecast for the third quarter, after it broke tradition in April and issued a one-off quarterly outlook to give investors more clarity at a time when U.S. President Donald Trump's global tariffs were first going into effect. "That quarterly guidance was really driven by the unprecedented volatility of the foreign exchange markets" finance chief Jim Kavanaugh told Reuters. "What is different over the past 90 days -- the FX world is kind of stabilized ... so we reverted back to our standard practice." Consulting sales grew 3%, ending five consecutive quarters of revenue declines, as businesses seek expertise on integrating AI products. Reporting by Arsheeya Bajwa in Bengaluru; Editing by Alan Barona Our Standards: The Thomson Reuters Trust Principles., opens new tab

AI mainframe sales help IBM breeze past the Street's targets on earnings and revenue - SiliconANGLE

AI mainframe sales help IBM breeze past the Street's targets on earnings and revenue IBM Corp. beat expectations on second-quarter earnings and revenue today, aided by strong sales of its new mainframe hardware, which is capable of processing vast amounts of data, making it useful for artificial intelligence workloads. The company reported earnings before certain costs such as stock compensation of $2.80 per share, easing past Wall Street's target of $2.64 per share. Revenue for the period rose 8% to $16.98 billion, ahead of the $16.59 billion analyst consensus estimate. That represents a strong rebound, after the company recorded revenue growth of just 1% in the first quarter. All told, IBM delivered net income of $2.19 billion, up from $1.83 billion in the year-ago period. On a conference call with analysts, IBM Chief Executive Arvind Krishna (pictured) said geopolitical tensions continue to prompt some of its customers from moving cautiously, though he said this was not a major factor overall. "U.S. federal spending was also somewhat constrained in the first half, but we do not expect it to create long term headwinds," he added. One blip on IBM's results sheet was software revenue, which increased 10% to $7.39 billion in the quarter, but fell short of the Street's $7.43 billion target. On the other hand, IBM's hybrid cloud revenue, which includes sales from Red Hat, grew by 16%, just ahead of estimates. The reason for the lower software revenue is that many clients have "reprioritized their spend to hardware," Krishna told analysts. The CEO explained that a growing number of enterprises have switched their focus to spending on AI infrastructure expansion, due to uncertainties around macroeconomic and trade conditions. IBM said its generative AI book of business, which combines bookings with actual sales across various AI products and services, rose to $7.5 billion in the quarter, up from $6 billion in April. The company has made a big effort to attract AI developers, with one of its most recent announcements being a new service called watsonx Orchestrate, which is said to enable businesses to build autonomous AI agents that can perform tasks without human supervision in less than five minutes Meanwhile, revenue from IBM Consulting was up 3% to $5.31 billion, coming in ahead of the Street's forecast of $5.16 billion. Companies are increasingly looking for help as they struggle to integrate AI into their systems alone. They're also looking to streamline their information technology operations so they can act more swiftly in the rapidly evolving economic environment, Krishna said. The company reported infrastructure revenue of $4,14 billion, up 14% from a year ago and well above the consensus estimate of $3.75 billion. During the quarter, IBM launched the latest generation of its venerable mainframe computer, the IBM z17, which features more advanced processors geared towards running generative AI workloads and financial applications. It went on sale in early June, and helped to boost the company's sales, officials said, though the company didn't provide an exact figure. IBM did not offer any guidance for the third quarter, in line with its standard practice. The company broke with tradition in April and offered investors a one-off outlook on revenue, due to the uncertainty around U.S. President Donald Trump's tariffs policy at the time. But it didn't feel the need to do so today. However, the company reiterated it's still looking for more than $13.5 billion in free cash flow in fiscal 2025, as it said three months earlier. For the full year, it's looking for revenue growth of around 5% at constant currency rates. IBM Chief Financial Officer Jim Kavanaugh told analysts on the call that the company is also hopeful it can expand its business through new 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," he said. Although the results were largely positive, investors were apparently hoping for some more convincing numbers, and IBM's stock fell more than 5% in extended trading on the back of the report. That said, it remains one of the better performing tech stocks this year, and is still up 28% in the year to date.

IBM earnings were strong, so why is the stock price sliding today? Here's what has investors spooked

IBM announced strong second quarter 2025 earnings that beat expectations on many points, helped in part by response to its new AI-focused mainframe computer. So why is the stock sliding today? First, a look at the results. Shares in the stock (NYSE: IBM) were down over 8% on Thursday in midday trading, after the tech giant beat expectations for "revenue, profit, and free cash flow" this quarter. The company reported revenue of $16.98 billion, topping expectations of $16.59 billion, with earnings-per-share (EPS) of $2.80, beating expectations of $2.64. It also raised its full year forecast. "With our strong first-half performance, we are raising our full-year outlook for free cash flow, which we expect to exceed $13.5 billion," IBM chief executive Arvind Krishna said in a statement. "IBM remains highly differentiated in the market because of our deep innovation and domain expertise, both crucial in helping clients deploy and scale AI. Our generative AI book of business continues to accelerate and now stands at more than $7.5 billion." That's all good news for investors. In fact, IBM's revenue increased nearly 8% year-over-year in the quarter, according to its earnings statement. So why the stock dive?

AI mainframe sales help IBM beat Street's earnings targets, but software miss upsets investors - SiliconANGLE

AI mainframe sales help IBM beat Street's earnings targets, but software miss upsets investors IBM Corp. beat expectations on second-quarter earnings and revenue today, aided by strong sales of new mainframe hardware that's capable of processing vast amounts of data for artificial intelligence workloads, but a miss on software revenue sent its stock plunging nearly 8% on Thursday. The company reported earnings before certain costs such as stock compensation of $2.80 per share, easing past Wall Street's target of $2.64 per share. Revenue for the period rose 8%, to $16.98 billion, ahead of the $16.59 billion analyst consensus estimate. That represents a strong rebound, after the company recorded revenue growth of just 1% in the first quarter. All told, IBM delivered net income of $2.19 billion, up from $1.83 billion in the year-ago period. Still, investors were apparently hoping for some more convincing numbers, especially on the software side, and IBM's stock fell more than 5% in extended trading on the back of the report, and even more Thursday. That said, it remains up almost 19% in the year to date. On a conference call with analysts, IBM Chief Executive Arvind Krishna (pictured) said geopolitical tensions continue to keep some of its customers from moving cautiously, though he said that was not a major factor overall. "U.S. federal spending was also somewhat constrained in the first half, but we do not expect it to create long-term headwinds," he added. One blip on IBM's results sheet was software revenue, which increased 10%, to $7.39 billion, in the quarter, but fell short of the Street's $7.43 billion target. On the other hand, IBM's hybrid cloud revenue, which includes sales from Red Hat, grew by 16%, just ahead of estimates. The reason for the lower software revenue is that many clients have "reprioritized their spend to hardware," Krishna told analysts. The CEO explained that a growing number of enterprises have switched their focus to spending on AI infrastructure expansion, due to uncertainties around macroeconomic and trade conditions. IBM said its generative AI book of business, which combines bookings with actual sales across various AI products and services, rose to $7.5 billion in the quarter, up from $6 billion in April. The company has made a big effort to attract AI developers. One of its most recent announcements is a new service called watsonx Orchestrate, which it says enables businesses to build autonomous AI agents that can perform tasks without human supervision in less than five minutes Meanwhile, revenue from IBM Consulting inched up 3%, to $5.31 billion, coming in ahead of the Street's forecast of $5.16 billion. Companies are increasingly looking for help as they struggle to integrate AI into their systems alone. They're also looking to streamline their information technology operations so they can act more swiftly in the rapidly evolving economic environment, Krishna said. The company reported infrastructure revenue of $4,14 billion, up 14% from a year ago and well above the consensus estimate of $3.75 billion. Constellation Research Inc. analyst Holger Mueller said IBM's mainframe was the star of the show in what was a very solid quarter for IBM overall. He added that its software value proposition for AI continues to grow, with its watsonX platform increasingly being seen as the "Switzerland" of AI stacks as a result of its portability. "With watsonX, it can run on any cloud stack and so enterprises don't have to worry about the risks of cloud lock-in," Mueller explained. "So that gives IBM an advantage, and with the new mainframe refresh cycle just starting to kick in, we can expect to see more momentum on the infrastructure side in the coming quarters. But IBM still needs to showcase its value proposition in agentic AI, both from an offerings and a services perspective. The next few quarters will be key." During the quarter, IBM launched the latest generation of its venerable mainframe computer, the IBM z17, which features more advanced processors geared toward running generative AI workloads and financial applications. It went on sale in early June, and helped to boost the company's sales, officials said, though the company didn't provide an exact figure. IBM did not offer any guidance for the third quarter, in line with its standard practice. The company broke with tradition in April and offered investors a one-off outlook on revenue, due to the uncertainty around U.S. President Donald Trump's tariffs policy at the time. But it didn't feel the need to do so today. However, the company reiterated it's still looking for more than $13.5 billion in free cash flow in fiscal 2025, as it said three months earlier. For the full year, it's looking for revenue growth of around 5% at constant currency rates. IBM Chief Financial Officer Jim Kavanaugh told analysts on the call that the company is also hopeful it can expand its business through new 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," he said.

IBM Stock Falls Over 6% In Thursday Pre-Market: What's Going On? - IBM (NYSE:IBM)

International Business Machines Corp. IBM declined 6.1% in Thursday's pre-market trading session after its Q2 software revenue fell short of consensus expectations. What Happened: IBM announced on Wednesday that its Q2 earnings per share stood at $2.80, exceeding the consensus estimate of $2.64. The company's quarterly revenue also outperformed, reaching $16.977 billion compared to the anticipated $16.576 billion. The company's generative AI business has seen significant growth, now standing at over $7.5 billion. However, software revenue rose 10% to $7.39 billion, slightly below analyst expectations of $7.43 billion. Hybrid cloud revenue, including Red Hat, grew 16%, while the software unit's gross margin was 83.9%, just under the 84.0% estimate. IBM's CFO, James Kavanaugh, stated, "Delayed decision making, especially in discretionary projects, as well as prior-year renewals impacted our in-period signings," reported CNBC. Meanwhile, Arvind Krishna, IBM's CEO, stated, "While not a major factor overall, geopolitical tensions are prompting a few clients to move cautiously." SEE ALSO: Kevin O'Leary Calls Trump's No Tax On Home Sales Plan 'Common Sense': Shark Says, 'Families Can Grow Without Getting Punished' Why It Matters: IBM's robust Q2 performance comes on the heels of its aggressive deployment of AI and automation tools, as highlighted in its second-quarter results. Kavanaugh announced that IBM expects to achieve approximately $4.5 billion in annual run-rate productivity savings by the end of 2025, up from $3.5 billion at the end of 2024. This strategy has been crucial in reshaping the company's internal operations. Earlier in May, IBM's AI push was a focal point at its Think 2025 event, with Goldman Sachs noting that the company's portfolio of software products and services is integral to large enterprise customers as they leverage AI across their organizations. Despite the software revenue falling below consensus, the CEO emphasized the company's robust performance, saying, "We once again exceeded expectations for revenue, profit and free cash flow in the quarter." Krishna credited the success to IBM's deep innovation and domain expertise, which are vital for clients to deploy and scale AI. Krishna also raised the company's full-year free cash flow outlook, anticipating it to surpass $13.5 billion, following a robust first-half performance. READ MORE: What Analysts Are Saying About IBM Stock Image via Shutterstock Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. IBMInternational Business Machines Corp$265.50-5.85%Stock Score Locked: Edge Members Only Benzinga Rankings give you vital metrics on any stock - anytime. Unlock RankingsEdge RankingsMomentum87.89Growth73.23Quality57.81Value18.17Price TrendShortMediumLongOverviewMarket News and Data brought to you by Benzinga APIs

Buy IBM Stock On 'Short-Term Weakness,' Analyst Asserts After Q2 Performance - IBM (NYSE:IBM)

International Business Machines IBM reported strong fiscal second-quarter 2025 results, beating Wall Street expectations across all primary metrics and reaffirming its full-year guidance. The stock is trading lower after the report. In a rapidly evolving technological landscape, companies are increasingly turning to AI and hybrid cloud solutions to stay competitive, driving significant shifts in the enterprise tech sector. IBM is at the forefront of this trend, leveraging its robust software and infrastructure services to capture the growing demand for generative AI. Also Read: IBM Stock Remains Under-Owned Despite Rally, Analyst Sees Further Upside Potential Wedbush analyst Daniel Ives maintained an Outperform rating on IBM with a price forecast of $325 on Thursday. The analyst said the company continues to see broad-based strength in software and infrastructure services, with over 10% of total revenue now coming from generative AI. He said its GenAI book of business accelerated to $7.5 billion, up from roughly $6.0 billion in the previous quarter, signaling increased enterprise adoption of its AI offerings. Total revenue rose 8% year-over-year to $16.98 billion, exceeding the Street's estimate of $16.59 billion and the company's guidance range of $16.40 billion to $16.75 billion. Software revenue grew 10% year-over-year, Red Hat revenue increased 14% in constant currency, and annual recurring revenue (ARR) expanded to $22.70 billion, up 10% year-over-year. ARR now accounts for 45% of IBM's business. The company cited a strong start to its z17 infrastructure as a key driver, with infrastructure investments expected to yield a 3x-4x multiplier across IBM's product stack, Ives stated. Consulting revenue came in at $5.31 billion, up 3% year-over-year and flat in constant currency, narrowly topping consensus estimates of $5.16 billion. IBM added over 200 new clients to the consulting segment, and its backlog grew at a mid-single-digit pace despite a tight pricing environment. Adjusted gross margin rose to 60.1%, topping the Street's 58.4% estimate. Trending Investment OpportunitiesAdvertisementArrivedBuy shares of homes and vacation rentals for as little as $100. Get StartedWiserAdvisorGet matched with a trusted, local financial advisor for free.Get StartedPoint.comTap into your home's equity to consolidate debt or fund a renovation.Get StartedRobinhoodMove your 401k to Robinhood and get a 3% match on deposits.Get Started Adjusted pre-tax income margin reached 18.8%, beating expectations of 18.1%, reflecting improved operating leverage across the business. Free cash flow rose to $2.85 billion, up from $2.61 billion a year earlier, supported by productivity initiatives and efficient cost management. IBM reaffirmed its full-year 2025 revenue guidance, projecting at least 5% growth in constant currency, including a 1.5% FX tailwind. The company raised its free cash flow guidance to more than $13.50 billion, exceeding the Street estimate, and aims to exit fiscal 2025 with ~$4.5 billion in annual run-rate savings by scaling AI internally. Management said customer buying behavior has remained stable into third-quarter, and the firm plans to continue balancing growth investments with margin expansion, Ives noted. IBM emphasized that its "business flywheel" -- the effect of cross-selling AI across software, infrastructure, and consulting -- is gaining momentum, the analyst said. The company sees growing opportunity as more enterprises implement hybrid and AI-driven solutions to boost productivity, he added. Ives noted IBM is well-positioned to capitalize on structural shifts in enterprise tech, particularly the rising demand for hybrid cloud and AI applications. The analyst pointed out the company's expanding GenAI revenue and consistent execution as catalysts for long-term profitable growth. Given the strong second-quarter performance and raised outlook, he suggested buying on any short-term weakness in the stock. Price Action: IBM stock is trading lower by 7.68% to $260.34 at last check on Thursday. Read Next: Amazon's AI-Powered AWS, Efficiency Gains, And Consumer Demand Fuel Bullish Q2 Outlook Photo courtesy MacroEcon via Shutterstock IBMInternational Business Machines Corp$261.11-7.41%Stock Score Locked: Edge Members Only Benzinga Rankings give you vital metrics on any stock - anytime. Unlock RankingsEdge RankingsMomentum87.89Growth73.23Quality57.81Value18.17Price TrendShortMediumLongOverviewMarket News and Data brought to you by Benzinga APIs

IBM Posts 8 Percent Revenue Gain in Q2

International Business Machines (IBM 0.02%), a global technology and consulting company known for its focus on enterprise software, hybrid cloud, and artificial intelligence solutions, released its Q2 2025 earnings on July 23, 2025. The results exceeded analyst expectations for both revenue (GAAP) and non-GAAP earnings per share. IBM reported $2.80 per share in non-GAAP earnings, ahead of the $2.65 estimate, and revenue of $17.0 billion, above the $16.59 billion GAAP estimate. The period showed notable year-over-year growth in several segments and broad-based improvements in margins, though growth in its consulting business remained modest. Management described the quarter as demonstrating progress along strategic priorities, particularly in hybrid cloud and AI, and raised its annual free cash flow outlook, indicating confidence in sustained cash generation and profit expansion. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report. Company Overview and Strategic Focus IBM operates as a broad-based technology provider. Its main businesses include enterprise software, consulting services, and IT infrastructure products like mainframes and cloud computing systems. The company serves a range of large organizations around the world, delivering solutions across hybrid cloud and artificial intelligence. Recently, IBM has zeroed in on hybrid cloud and AI as pillars of growth. AI, or artificial intelligence, powers automation, analytics, and advanced computing within IBM's offerings. The company's key success factors include driving adoption of these technologies, strengthening recurring revenue streams, and leveraging its strong research and development to innovate ahead of competitors. Quarter in Review: Business Segment Performance and Earnings Drivers Software led the way, with revenue up 9.6% for Q2 2025. It was propelled by hybrid cloud platforms (notably Red Hat software) and automation tools -- both growing 16% year over year. The company reported a "generative AI book of business" now exceeding $7.5 billion as of Q2 2025. This reflects client demand for AI-driven solutions across its portfolio. Automation and data sub-segments also recorded high single- to double-digit gains. The consulting segment delivered a smaller increase in revenue of 3% year-over-year for Q2 2025. It was flat when adjusted for currency. Management noted ongoing caution in consulting spending, especially from government and federal clients, making it a segment exposed to macroeconomic slowdowns and client discretion. Despite moderate revenue gains, consulting's profit margin improved to 10.6% from 8.9% a year earlier (GAAP). The infrastructure segment, which includes IBM's mainframe and distributed IT hardware products, posted the strongest relative revenue growth at 13.6% for Q2 2025. Segment margin surged to 23.3%. A key driver was new mainframe launches under the IBM Z platform -- a type of powerful computer system used for mission-critical workloads, particularly in banks and other large enterprises. Mainframe sales rose 70% year-over-year. Distributed infrastructure -- which includes other servers and storage -- declined by 15%, showing that product-cycle timing and customer refresh behaviors significantly shaped results this quarter. Outside these three core businesses, the financing division was mostly flat, remaining a minor contributor to corporate results. Research and development spending rose 14% year-over-year. There were no material one-time items distorting quarterly comparisons. The quarterly dividend was maintained at $1.68 per share. This marks more than a century of uninterrupted payments. Looking Forward: Guidance and Near-Term Priorities IBM raised its full-year 2025 free cash flow guidance to above $13.5 billion, indicating growing confidence in sustainable cash generation. Management expects revenue growth of at least 5% in constant currency for FY2025, with current exchange rates providing an estimated 1.5 percentage point tailwind to growth. Investors should continue to watch for trends in IBM's consulting business, which remains susceptible to short-term shifts in client demand. The company's upward guidance for cash flow will be tested by larger debt levels, as total debt rose to $64.2 billion. IBM's next quarters will also be influenced by the full impact of its new products, the integration of acquired businesses like HashiCorp, and ongoing investments in research and innovation. The quarterly dividend was maintained at $1.68 per share for Q3 2025. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

IBM Boosts Forecast on AI and Red Hat | The Motley Fool

International Business Machines (IBM -7.62%) reported 2Q 2025 earnings on July 23, 2025, delivering $17 billion in revenue and $4.8 billion in first-half free cash flow, driven by standout software and infrastructure gains. The company raised its full-year free cash flow outlook to above $13.5 billion and affirmed revenue growth guidance above 5%, supported by double-digit Red Hat growth, robust automation, and surging AI-related bookings. Key insights below highlight IBM's accelerating software momentum, transformation in productivity, and expanding AI footprint. Red Hat contributed 3.5 percentage points of organic software growth, while automation grew 15% in the first half of 2025, and HashiCorp delivered a strong initial performance following its acquisition. OpenShift achieved $1.7 billion in annual recurring revenue (ARR), and Red Hat's virtualization pipeline grew by over $300 million in total bookings through the first three quarters. "OpenShift growing revenue more than 20% with ARR now at $1.7 billion. Automation grew 14%, with HashiCorp off to a strong start ... We accelerated our Red Hat performance first quarter, second quarter by an incremental point, now growing about 14.5% ... our pipeline in the second half is 3x last year across our entire automation portfolio with regards to HashiCorp." -- Jim Kavanaugh, Senior Vice President and Chief Financial Officer This sustained outperformance in hybrid cloud and automation positions IBM to deliver near-double-digit software revenue growth for FY2025 at constant currency, non-GAAP, driving a favorable long-term revenue mix shift and expanding recurring revenue base. IBM expanded its operating gross profit margin by 230 basis points, reflecting disciplined execution and productivity initiatives including embedding AI into workflows and optimizing the supply chain by moving distributed infrastructure manufacturing to a strategic partner. IBM exited 2024 with $3.5 billion in annual run rate savings and now expects to reach $4.5 billion by the end of 2025, fueling further margin expansion and cash flow conversion. "We are taking up the year on our productivity initiatives. We exited last year, we talked about $3.5 billion of productivity that we've been able to fundamentally drive out of this business ... that's given us guidance and confidence to raise that to $4.5 billion. That flows to operating margin. We're taking our operating margins up from a half a point to now roughly a point ... and then we're flowing that all the way down through the cash flow. High quality, sustainable cash flow generation." -- Jim Kavanaugh, Senior Vice President and Chief Financial Officer Escalating productivity-driven savings provide IBM with headroom for strategic M&A and ongoing innovation investment. IBM's cumulative Gen AI book of business surpassed $7.5 billion since inception, with AI now surpassing 10% of consulting revenue at a more than three-point margin premium compared to non-AI work. Over 150 prebuilt agents and deep partnerships with Oracle, Amazon Web Services (AWS), Salesforce, and others are embedding Watson x solutions across customer workflows, while unique offerings like Code Assistant for z and the newly launched z17 mainframe further strengthen IBM's competitive position in scalable enterprise AI. "Our Gen AI book of business now stands at over $7.5 billion inception to date, with momentum accelerating quarter over quarter. We are seeing strong demand for our AI agents and assistants, REL AI, Granite Models, as well as an accelerating need for our consulting services to deploy AI. Just last week, IBM was recognized as an emerging leader in the first-ever Gartner emerging market quadrant for Gen AI consulting and implementation services." -- Arvind Krishna, Chairman, President, and Chief Executive Officer IBM's leadership in enterprise-scale AI and its partner ecosystem create a powerful flywheel effect, deepening client engagement and underpinning the company's long-term secular growth thesis in AI-powered automation and hybrid cloud environments. For the full year, IBM reaffirmed constant currency revenue growth of 5% plus (non-GAAP) and raised free cash flow guidance above $13.5 billion. Management expects software to approach double-digit revenue growth, with Red Hat growth in the mid-teens and low-single-digit gains in transaction processing are expected as the z17 mainframe cycle accelerates. Operating pre-tax margin is now expected to expand by about one point for the full year, and IBM is comfortable with consensus expectations for revenue and profit.

IBM raises 2025 free cash flow guidance above $13.5B while accelerating AI-driven portfolio (NYSE:IBM)

CEO Arvind Krishna highlighted, "In the second quarter, we delivered solid results across revenue, profit and cash, exceeding our expectations. Our performance this quarter was led by software and infrastructure as demand Seeking Alpha's Disclaimer: The earnings call insights are compilations of earnings call transcripts and other content available on the Seeking Alpha website. The insights are generated by an AI tool and have not been curated or reviewed by editors. Due to inherent limitations in using AI-based tools, the accuracy, completeness, or timeliness of the earnings call insights cannot be guaranteed. Please see full earnings call transcripts here. The earnings call insights are intended for informational purposes only. Seeking Alpha does not take account of your objectives or your financial situation and does not offer any personalized investment advice. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.

IBM results beat estimates on AI mainframe refresh, consulting revival

(Reuters) -IBM beat Wall Street estimates for second-quarter revenue and profit on Wednesday, helped by renewed sales in its mainframe business as artificial intelligence upgrades spurred demand for the systems, which are capable of processing vast amounts of data. Clients have focused on investing in AI infrastructure expansion as macroeconomic uncertainty and ongoing trade negotiations prompt businesses to prioritize spending on the booming technology. Shares of the company fell 4% in extended trading, after a nearly 30% rise this year. "All of us are still operating in a very dynamic macroeconomic environment," finance chief Jim Kavanaugh told Reuters. Sales of IBM's latest mainframe -- powered by chips specialized for AI applications -- kicked off in June, boosting second-quarter revenue following a three-year cycle for the system's previous version. The Big Blue reported revenue of $16.98 billion for the June quarter, up nearly 8% from last year and beating the analysts' average estimate of $16.59 billion, according to data compiled by LSEG. The infrastructure segment, which houses its mainframe, reported revenue of $4.14 billion, beating estimates of $3.81 billion. IBM did not provide a forecast for the third quarter, after it broke tradition in April and issued a one-off quarterly outlook to give investors more clarity at a time when U.S. President Donald Trump's global tariffs were first going into effect. "That quarterly guidance was really driven by the unprecedented volatility of the foreign exchange markets and what we were dealing with 90 days ago," Kavanaugh said. "What is different over the past 90 days -- the FX world is kind of stabilized ... so we reverted back to our standard practice." Sales in the consulting business also grew 3% in the quarter to $5.31 billion, ending five consecutive quarters of revenue declines. Businesses are increasingly turning to IBM's consulting business as they seek expertise on integrating AI products and conducting operations in a rapidly evolving economic environment. Its "AI book of business," which combines bookings and actual sales across various products, grew to $7.5 billion, up $1.5 billion from the previous quarter. Second-quarter adjusted earnings of $2.80 per share also beat estimates. (Reporting by Arsheeya Bajwa in Bengaluru; Editing by Alan Barona)

Transcript : International Business Machines Corporation, Q2 2025 Earnings Call, Jul 23, 2025

Thank you for joining us today. In the second quarter, we delivered solid results across revenue, profit and cash, exceeding our expectations. Our performance this quarter was led by software and infrastructure as demand remains high for technology that improves productivity, reduces costs and fuels innovation. While the operating environment remains dynamic, these results reflect the strength of our portfolio and the resiliency of our business model. Before I get deeper into the results, let me touch on the broader economic backdrop. I'll start by saying that we appreciate the administration's priority on economic growth and focused regulation, which will strengthen the U.S. competitive position. We believe this will result in long-term value creation and enable technology to contribute to economic growth. Technology continues to serve as a key competitive advantage, allowing businesses to scale, drive efficiencies and fuel growth, and we saw this play out in the quarter. While not a major factor overall, geopolitical tensions are prompting a few clients to move cautiously. U.S. federal spending was also somewhat constrained in the first half, but we do not expect it to create long-term headwinds. Let me now turn to our execution in the quarter. Our strategy remains focused, hybrid cloud and artificial intelligence. This strategy is built on 5 reinforcing elements: client trust, flexible and open platforms, sustained innovation, deep domain expertise and a broad ecosystem. Together, they form a flywheel for growth, which again played out this quarter. In Software, we continue to see momentum, including 14% growth in Red Hat. HashiCorp is also off to a great start, accelerating performance in our first full quarter since closing and seeing early wins with joint Ansible and Terraform product synergies. Infrastructure was up 11% driven by a very strong start to z17. The new IBM Z is an embodiment of the hybrid cloud and AI capabilities we bring to clients. IBM Z continues to deliver on its core strengths, AI, security and scalable capacity, driving its enduring nature with clients. These results were balanced by Consulting performance, which continues to be impacted by the demand environment. AI remains a powerful driver of transformation for our clients and for IBM. We are transforming our enterprise operations using technology and embedding AI across more than 70 workflows, leveraging our own IBM software solutions across hybrid cloud, automation and AI to drive competitive advantage. What differentiates IBM is the breadth of our AI offerings with an innovative technology stack and consulting business at scale and our client zero lens. Our GenAI book of business now stands at over $7.5 billion inception-to-date with momentum accelerating quarter-over-quarter. We are seeing strong demand for our AI agents and assistants, RHEL AI, Granite models as well as an accelerating need for our consulting services to deploy AI. Just last week, IBM was recognized as an emerging leader in the first-ever Gartner Emerging Market Quadrant for Gen AI Consulting & Implementation Services. Our client zero experience has resonated with companies like UPS, Verizon, Mizuho and Nestlé while using our AI tools to unlock data, drive automation and reduce operational friction. As clients focus on scaling AI and delivering ROI, our progress on internal productivity is fueling and accelerating our client engagements. We're also expanding our partner ecosystem to deliver AI at scale. This quarter, we announced new or deepened collaborations with Oracle, Box, AWS, Salesforce, Microsoft, EY, Finastra and WPP. Each is aimed at embedding watsonx into core business workflows. At Think 2025, we introduced new capabilities across our portfolio. We launched new features for watsonx Orchestrate, which allows users to build custom AI agents in minutes with no coding required. There are now more than 150 prebuilt, domain-specific agents in our catalog spanning HR, sales, procurement and IT. Our partners are building on this as well, integrating agents from Oracle, Salesforce, AWS and others. And Orchestrate supports the full agent life cycle from building to managing and governing agents across business functions regardless of which AI models they are built with. We expanded watsonx.data to enable our enterprise clients to get easy access and drive value from their trusted unstructured data. And our webMethods hybrid integration simplifies how clients' connect workflows, APIs and data across hybrid environments. As agentic AI matures, we believe it will power over 1 billion new applications and a massive expansion in code, driving a critical need for automation. Our automation portfolio is uniquely positioned to deliver these solutions to clients across hybrid cloud. SAP plans to deploy our high-value automation portfolio, including Red Hat Ansible automation platform and HashiCorp Terraform and Vault, highlighting the opportunity we have in product synergies. Innovation also extends to infrastructure. This quarter, we launched z17, our most advanced mainframe yet. It features the new Telum II processor delivering more than 450 billion AI inference operations per day with millisecond latency. That means AI models can run directly on transactional workloads with no external servers needed. The Spyre Accelerator, which will be available in the fourth quarter, will enable watsonx Code Assistant for Z and watsonx Assistant for Z to run natively on z17. As more than 70% of IBM Z clients continue to expand or maintain capacity, our software stack is bringing even more innovation to IBM Z, including watsonx Code Assistant for Z, watsonx.data, Concert and HashiCorp Vault. In July, we introduced Power11 to deliver the performance, resiliency and scalability enterprises need to run mission-critical, data-intensive workloads across hybrid environments. And we have announced RISE with SAP on Power11. In Quantum, we achieved a major milestone with the deployment of IBM Quantum System Two in Japan in partnership with RIKEN. This marks the first installation outside the United States and underscores our commitment to global leadership in quantum computing. To complement our organic innovation, M&A remains important. We closed the acquisition of DataStax this quarter, adding real-time scalable data capabilities to support AI-driven applications. In closing, we remain focused on consistent execution and long-term growth. While the environment remains dynamic, we have a disciplined strategy and a durable business model. Given our first half performance, we continue to expect accelerating revenue growth to 5%-plus and are raising our expectations for free cash flow to above $13.5 billion for the year. We are confident in our ability to deliver sustainable, profitable growth.