IBM Beats Expectations on Q2 Earnings, Stock Falls
Despite beating on revenue, EPS, and cash flow, IBM shares declined $267.46 −14.55 (−5.16%) in after-hours trading. Investors appear cautious over the mixed performance in Consulting and muted short-term upside signals.
Key Financial Results (Quarter Ended June 30, 2025)
| Metric | Actual | YoY Change |
|---|---|---|
| Revenue | $17.0B | ▲8% |
| Operating EPS (Non-GAAP) | $2.80 | ▲15% |
| GAAP EPS | $2.31 | ▲18% |
| Adjusted EBITDA | $4.7B | ▲16% |
| Free Cash Flow (Q2) | $2.8B | ▲$200M |
| Operating Gross Margin | 60.1% | ▲230 bps |
| Operating Pre-Tax Margin | 18.8% | ▲110 bps |
Segment Breakdown
Software: $7.39B (▲10%)
- Red Hat: ▲14% CC; OpenShift ARR: $1.7B
- Automation: ▲14% CC
- Data: ▲7% CC
- Transaction Processing: ▼2% CC
Infrastructure: $4.14B (▲14%)
- IBM Z: ▲67% CC on z17 launch
- Hybrid Infra: ▲19% CC
- Distributed Infra: ▼17% CC
Consulting: $5.31B (▲3%)
- Flat at constant currency
- GenAI business >$1B this quarter
- Client caution continues; backlogs up 4% YoY
Strategic Highlights
- GenAI book of business exceeds $7.5B
- Over 150 AI agents launched in watsonx Orchestrate
- z17 mainframe and Telum II chip enable real-time AI inferencing (450B ops/day)
- Expanded AI/cloud partnerships with Oracle, AWS, Salesforce, Microsoft, EY
- Power11 announced in July for high-resilience hybrid workloads
- DataStax acquisition closed; enhances real-time AI applications
FY25 Outlook
| Metric | Guidance |
|---|---|
| Revenue Growth (CC) | ≥5% |
| Free Cash Flow | Raised to >$13.5B |
| Operating Pre-Tax Margin | Raised by +1 pt YoY |
| Software Growth | Approaching double digits |
| Red Hat Growth | Mid-teens expected |
| Consulting | Remains cautious |
Takeaway
IBM delivered strong execution in Software and Infrastructure, but Consulting headwinds and investor sensitivity to growth quality weighed on the stock. AI growth remains robust, but the path to monetization and near-term acceleration may not yet fully convince markets.