IBM's Q2 Results Highlight AI and Software Growth: Analysts

IBM's Q2 results highlight growth in AI and software segments. Analysts say the company is well-positioned to capitalize on these areas. IBM's solid performance underscores the growth potential in its AI and software business.

Title: IBM's Q2 Results Show Strong Growth in AI and Software Segments

International Business Machines Corp (IBM) reported its second-quarter 2025 earnings on July 23, with notable growth in its AI and software segments. The tech conglomerate's shares fell by up to 5% in extended trading after the announcement, despite exceeding Wall Street projections.

IBM's earnings per share (EPS) were $2.80, surpassing the expected $2.64. Revenue for the quarter totaled $16.98 billion, an increase of nearly 8% year-over-year, compared to the $16.59 billion consensus estimate. Net income rose to $2.19 billion, or $2.31 per share, from $1.83 billion, or $1.96 per share, a year ago [1].

Software revenue climbed about 10% to $7.39 billion, exceeding the $7.43 billion consensus. The unit's gross margin of 83.9% was slightly narrower than the StreetAccount's 84.0% consensus. Consulting revenue rose almost 3% to $5.31 billion, higher than the StreetAccount's $5.16 billion consensus. Infrastructure revenue increased by 14% to $4.14 billion, above the $3.75 billion StreetAccount average estimate [1].

IBM announced the next-generation z17 mainframe computer and the acquisition of data and artificial intelligence consulting firm Hakkoda during the quarter. The company called for over $13.5 billion in 2025 free cash flow, similar to its April projection. IBM expects at least 5% revenue growth at constant currency for the year [1].

Analysts have praised IBM's performance, with 18 analysts offering an average target price of $269.73, ranging from $190.00 to $325.00. The average consensus recommendation from 23 brokerage firms is "Outperform," indicating a positive outlook for the company [2].

IBM's software segment grew by 9% in the first quarter, with notable strength in Red Hat, Automation, Data, and Transaction Processing. The company's generative AI business saw significant traction, with a book of business now over $6 billion, up by $1 billion in the quarter. The upcoming launch of the z17 mainframe is expected to deliver enhanced AI capabilities and new security features, resonating well with clients [3].

However, consulting revenue was flat, with some clients delaying decision-making, particularly in discretionary projects, impacting in-period signings. Infrastructure revenue declined by 4%, with IBM Z down 14% as the company wrapped up the z16 program [3].

IBM's solid performance underscores the growth potential in its AI and software business. The company's strategic focus on AI and hybrid cloud continues to gain traction, with the generative AI book of business accelerating to over $7.5 billion inception-to-date. IBM's productivity initiatives have driven strong margin performance while fueling investments in innovation [3].

References:
[1] https://www.cnbc.com/2025/07/23/ibm-q2-earnings-report-2025.html
[2] https://www.gurufocus.com/news/2998883/ibm-ibm-surpasses-q2-revenue-expectations-with-strong-growth-ibm-stock-news
[3] https://ng.investing.com/news/company-news/ibm-q2-2025-slides-show-accelerating-ai-momentum-raises-fullyear-guidance-93CH-2022282