IBM Shares Decline Despite Strong Q4 Earnings

IBM reported better-than-expected earnings results for its latest quarter, with CEO James Kavanaugh citing strong demand for AI adoption and investments. However, the stock fell by as much as 6% following the release, likely due to high expectations set by its rally this year.

IBM (IBM) reported robust earnings results for the second quarter of 2025, with revenue and earnings per share (EPS) exceeding analyst expectations. The company's shares, however, fell by as much as 6% premarket, likely due to high expectations set by the stock's strong performance this year.

IBM's second-quarter revenue increased by 8% to $17.0 billion, surpassing the Zacks Consensus Estimate of $16.6 billion [1]. Software revenue grew by 10% to $7.39 billion, while consulting revenue rose by 3% to $5.31 billion. Infrastructure revenue also saw a significant increase, rising by 14% to $4.14 billion.

The company's EPS for the quarter was $2.80 per share, beating the Zacks Consensus Estimate of $2.62 per share [1]. This quarterly report represents an earnings surprise of +6.06%, as IBM has consistently surpassed consensus EPS estimates over the last four quarters.

Despite the strong earnings, IBM's stock fell by 5.1% premarket after the company missed software sales estimates. The company's software unit sales increased by 10% to $7.39 billion, slightly below analysts' average estimate of $7.49 billion [2]. This underperformance in the software segment, which has been a key driver of investor optimism, has dampened enthusiasm among shareholders.

IBM's management has emphasized software and services as the path to rejuvenation since the 1990s, with recent progress under CEO Arvind Krishna. However, the recent miss in software sales estimates has raised questions about the company's ability to meet investor expectations and achieve the growth potential anticipated from AI tools and quantum computing [2].

Despite the setback in the software segment, IBM's infrastructure unit performed strongly, with sales gaining 14% to $4.14 billion, beating the $3.66 billion anticipated by Wall Street [2]. This strong performance in the infrastructure division has been driven by demand from large enterprises, particularly in the finance and retail industries.

IBM maintained its annual sales forecast of at least 5% growth in constant currency, and free cash flow is projected to exceed $13.5 billion, in line with analysts’ estimates [1]. The company's profit, excluding some items, was $2.80 per share, compared with the average estimate of $2.62.

The sustainability of IBM's stock price movement will depend on how the company's earnings outlook and estimate revisions evolve. Analysts have noted that the company has surpassed consensus EPS estimates four times over the last four quarters [1]. However, the current status translates into a Zacks Rank #4 (Sell) for the stock, indicating that the shares are expected to underperform the market in the near future [1].

Investors should closely monitor IBM's earnings outlook and estimate revisions to gauge the stock's potential future performance. While IBM has outperformed the market so far this year, the recent miss in software sales estimates has introduced uncertainty into the stock's immediate trajectory.

References:
[1] https://www.nasdaq.com/articles/ibm-ibm-surpasses-q2-earnings-and-revenue-estimates
[2] https://www.ainvest.com/news/ibm-shares-5-1-premarket-company-misses-q2-software-sales-estimates-2507/