IBM's Q2 Earnings: Software Revenues, Consulting Growth, and AI Initiatives in Focus

Will Lower Software Revenues Impact IBM's Q2 Earnings?

International Business Machines Corporation IBM is scheduled to report second-quarter 2024 results on Jul 24, after the closing bell. In the to-be-reported quarter, the company is likely to have recorded lower revenues from the Software segment owing to weakness in the hybrid platform & solutions business. However, a strong focus on product innovation and the growing clout of watsonx.ai across various sectors is a tailwind. Factors at Play The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing. During the second quarter, IBM introduced significant updates to Qiskit, its widely used quantum software platform. This enhancement is designed to maximize the performance of IBM's quantum hardware, allowing users to run increasingly complex quantum circuits. The advanced feature in IBM's Qiskit stack includes The Qiskit Runtime Service, which simplifies the execution of quantum circuits, while the Qiskit Code Assistant, powered by watsonx-based generative AI models, automates the development of quantum code. Additionally, the Qiskit Serverless tool facilitates quantum-centric supercomputing workloads across both quantum and classical hardware. IBM is steadily advancing with its vision of integrating quantum, classical and AI resources into a new high-performance computing paradigm defined by quantum-centric supercomputing. The Qiskit solution is witnessing healthy market traction in various sectors, such as energy and education. These are likely to have supported the top line in the Software segment. In the quarter under review, All-England Lawn Tennis Club leveraged IBM's AI and data platform, watsonx, to introduce enticing AI native features to enrich the overall experience of tennis fans, coaches and players globally. A prominent marketing and advertising company based in the U.K. collaborated with IBM to introduce a new business-to-business (B2B) solution within the marketing industry. Leveraging IBM's cutting-edge AI technologies, including watsonx, the solution aims to address B2B marketing challenges and expedite digital transformation for business enterprises globally. These developments will likely have a favorable impact on net sales in the Software segment. In the second quarter, IBM inked a definitive agreement to acquire HashiCorp Inc for an all-cash transaction of $35 per share, totaling an enterprise value of approximately $6.4 billion. HashiCorp boasts a robust product suite that allows businesses to automate their hybrid and multi-cloud environments with extensive Infrastructure Lifecycle Management and Security Lifecycle Management capabilities. Integration of Hashicorp's capabilities is expected to drive synergies in multiple strategic growth areas such as IBM watsonx, Red HaT, IT automation and more. This will significantly strengthen IBM's hybrid multi-cloud approach and accelerate innovation. However, the persistence of uncertainty in some end markets stemming from macroeconomic headwinds remains a concern for this segment. Frequent acquisition exposes the company to integration risks. Overall Expectations The Zacks Consensus Estimate for Software revenues is pegged at $6.55 billion, indicating a decline from $6.6 billion in the year-ago quarter. However, our estimate for revenues from Software is pegged at $6.61 billion, suggesting a 5.1% improvement year over year. The Zacks Consensus Estimate for total revenues for the company stands at $15.58 billion. It generated revenues of $15.48 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.16 per share, indicating decline from $2.18 in the year-earlier quarter. Earnings Whispers Our proven model predicts a likely earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here. Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.46%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter. International Business Machines Corporation Price and EPS Surprise International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote Here are some other companies you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this season: Corning Incorporated GLW is set to release quarterly numbers on Jul 30. It has an Earnings ESP of +1.59% and sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here. The Earnings ESP for Silicon Motion Technology Corporation SIMO is +2.66% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Aug 1. The Earnings ESP for Meta Platforms, Inc. META is +1.35% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 31. Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar. Free Report - 3 Stocks Sneaking Into Hydrogen Energy Demand for clean hydrogen energy is projected to reach $500 billion by 2030 and grow 5-FOLD by 2050. No guarantees, but three companies are quietly getting the jump on their competition. Zacks Investment Research is temporarily offering an urgent Special Report naming and explaining these emerging powerhouses primed to boom. Click below for Hydrogen Energy: 3 Industrial Giants to Ride the Next Renewable Energy Wave. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report International Business Machines Corporation (IBM) : Free Stock Analysis Report Corning Incorporated (GLW) : Free Stock Analysis Report Silicon Motion Technology Corporation (SIMO) : Free Stock Analysis Report Meta Platforms, Inc. (META) : Free Stock Analysis Report The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

IBM's software growth, Gen AI bookings and consulting growth in focus during Q2 earnings

International Business Machines Corporation (NYSE:IBM) is set to report its second quarter results on Wednesday, as investors expect to see strong software services growth due to Gen AI bookings, while consulting growth dips. Wall Street expects the Armonk, New York-based tech company to post second quarter earnings per share of $2.17 on revenue of $15.62 billion, implying a rise of 0.96% year-over-year. According to a report by Morgan Stanley, the research firm expects it to be a tougher setup into earnings after its recent outperformance given the downside rise to consulting guide. The brokerage firm expects IBM's upside to software results offsetting downside to consulting revenue. "Throughout Q2, our checks have pointed to a continued challenging consulting spending environment, and we see discretionary spending still at-risk, while Generative AI consulting projects don't appear to be having any material incremental impact on consulting growth today," said analysts at Morgan Stanley. The research firm also added that while infrastructure performance surprised last quarter, it doesn't expect it to perform better than seasonal. The brokerage projects Q2 revenue of $15.6 billion revenue and $2.27 EPS forecasts 4% above consensus, with not much volatility expected in the June quarter. Seeking Alpha analyst Dan Victor wrote in his report that the company has been finding success by focusing on software and services, including artificial intelligence initiatives. Shares of IBM have been volatile in 2024 following a big rally last year and the company has been shifting its business away from legacy infrastructure hardware exposure toward a hybrid cloud and artificial intelligence strategy, he added in his report. Earlier in July, the enterprise software provider had also received a second request for information from the Federal Trade Commission over its antitrust probe of its merger with HashiCorp (HCP). IBM in late April had agreed to buy HashiCorp for $35 a share in cash in a $6.4 billion deal. "Ultimately, HashiCorp may add to the bullish case for IBM, which is the scenario where the now combined group can accelerate top-line growth and outperform expectations," Victor added in his report. Over the last two years, IBM has beaten EPS estimates 7 out of 8 times, while it has beaten revenue estimates 5 out of 8 times. Seeking Alpha analysts are bullish and rated the stock as Buy. However, Seeking Alpha's Quant ratings consider it a Hold with a score of 3.19 out of 5, dragged down predominantly by its growth prospects. Wall Street analysts were cautious, giving the stock a Hold recommendation. Over the last three months, the company has seen significant downgrades to its estimates. Its earnings per share estimates have been revised downwards 10 times vs. 2 upgrades, while revenue estimates have seen 12 downward moves, compared to 1 upward revision. The stock has grown about 32% in the last 12 months, outperforming the nearly 22% rise in the broader S&P 500 Index. More on IBM Google, Tesla Amid Earnings Deluge, Trump Talks Crypto, And Paris Olympics IBM Is Poised To Move Higher (Technical Analysis) IBM: Quantum Computing, Growth And Dividends Earnings week ahead: TSLA, GOOG, IBM, AAL, GM, F, VZ, T, and more IBM-HashiCorp deal receives second FTC request over antitrust review

Will Healthy Consulting Revenues Boost IBM's Q2 Earnings?

International Business Machines Corporation IBM is scheduled to report second-quarter 2024 results on Jul 24, after the closing bell. The company is expected to have registered higher revenues from the consulting segment, backed by rising demand for technology consulting and business transformation services. Factors at Play The Consulting segment comprises Business Transformation, Technology Consulting and Application Operations. It provides consulting and application management services that offer value and innovation to clients by leveraging industry, technology and business strategy, and process know-how. In the second quarter, IBM inked a Memorandum of Understanding with the Government of Spain to accelerate AI innovations and bolster the national AI strategy. This partnership spans multiple facets of AI, such as AI supercomputing, development and deployment of ethical and responsible generative AI features, as well as the creation of language AI models proficient in Spanish and co-official languages. This will likely to have a favorable impact on net sales in the Consulting segment. In the quarter under review, Palo Alto Networks collaborated with IBM to improve its security platforms with the latter's AI capabilities in order to deliver AI-powered security solutions. Both companies are collaborating to set up a joint Security Operations Center and a Cyber Range for customer training, with IBM Consulting becoming a preferred Managed Security Services Provider for PANW. IBM consulting also collaborated with Masters digital team to bring AI-powered personalized and engaging digital experiences to viewers at the 88th Masters tournament. These developments are likely to have driven incremental revenues in the Consulting segment in the second quarter. In the quarter under review, IBM inked an agreement to acquire SKYARCH NETWORKS, a leader in AWS (Amazon Web Service) focused cloud development and managed services in Japan. The integration of SKYARCH's expertise in AWS will bolster IBM Consulting's hybrid cloud service offerings and strengthen its prospects in the region. This will likely get reflected in the upcoming results. Overall Expectations The Zacks Consensus Estimate for Consulting revenues is pegged at $5.32 billion, indicating growth from $5 billion in the year-ago quarter. Our estimate for revenues from Consulting is pegged at $5.37 billion, implying 2.8% growth year over year. The Zacks Consensus Estimate for total revenues for the company stands at $15.58 billion. It generated revenues of $15.48 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.16 per share, indicating a decline from $2.18 in the year-earlier quarter. Earnings Whispers Our proven model predicts an earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here. Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.46%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter. International Business Machines Corporation Price and EPS Surprise International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote Here are some other companies you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this season: Corning Incorporated GLW is set to release quarterly numbers on Jul 30. It has an Earnings ESP of +1.59% and sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here. The Earnings ESP for Silicon Motion Technology Corporation SIMO is +2.66% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Aug 1. The Earnings ESP for Meta Platforms, Inc. META is +1.35% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 31. Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar Free Report - 3 Stocks Sneaking Into Hydrogen Energy Demand for clean hydrogen energy is projected to reach $500 billion by 2030 and grow 5-FOLD by 2050. No guarantees, but three companies are quietly getting the jump on their competition. Zacks Investment Research is temporarily offering an urgent Special Report naming and explaining these emerging powerhouses primed to boom. Click below for Hydrogen Energy: 3 Industrial Giants to Ride the Next Renewable Energy Wave. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report International Business Machines Corporation (IBM) : Free Stock Analysis Report Corning Incorporated (GLW) : Free Stock Analysis Report Silicon Motion Technology Corporation (SIMO) : Free Stock Analysis Report Meta Platforms, Inc. (META) : Free Stock Analysis Report The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Jefferies analysis: IBM's future growth hinges on software momentum By Investing.com

Investing.com - Jefferies released a research note on Tuesday, highlighting the need for tech giant International Business Machines (NYSE:IBM) to accelerate its software momentum. Despite IBM 's outperformance of the IGV (iShares Expanded Tech-Software Sector ETF) by 7% YTD, Jefferies believes that the company's stock is likely to remain range-bound, with modest growth in the 3-4% range. The three key areas analysts are monitoring include software growth, consulting, and AI contribution. The firm anticipates challenges in software growth due to tougher comparisons, and in consulting, which missed revenue expectations and saw a lowered guidance in the first quarter. Furthermore, Jefferies does not expect AI to make a significant contribution to the software sector this year. ⚠️Track your favorite companies with InvestingPro! Our Summer Sale is now on, use coupon code INVPRODEAL and save over 50%!⚠️ IBM, often referred to as 'Big Blue', is seen as a slow-moving entity, with Wall Street predicting just 1% total revenue growth in 2Q and a 15% free cash flow (FCF) margin. The sluggish growth expectations are largely due to the consulting segment, where other industry players such as Accenture plc (NYSE:ACN), Cognizant Technology Solutions Corp (NASDAQ:CTSH), and Infosys (NYSE:INFY) have reported ongoing uncertainty over discretionary spending projects. Software growth is projected to be 2.5% year-on-year, almost three times the overall revenue growth in 2Q. As IBM transitions towards a software-led model, the company's software performance is considered crucial for driving more substantial bottom-line growth. Software accounted for 40% of total revenue but approximately two-thirds of pre-tax income in CY23. In 2Q, the software business is expected to contribute the majority of overall growth, as well as in FY24. The consensus estimate for software revenue in 2Q is $6.5 billion, representing a 2.5% year-on-year growth. Jefferies emphasized the importance of strong execution in the Red Hat business and the successful integration of HCP for achieving sustainable software growth. The consulting business growth expectations are relatively muted due to weaker near-term demand. However, Jefferies believes that AI will significantly benefit the consulting sector in the short term, with IBM recording over $1 billion of AI bookings over the last three quarters, primarily weighted towards consulting. Analysts deemed the risk/reward as balanced, with IBM shares trading at 20 times CY25E EPS, compared to Microsoft (NASDAQ:MSFT) at 32 times and Oracle (NYSE:ORCL) at 28 times. Analysts at Jefferies maintained their 'Hold' rating for IBM with a price target of $190.