IBM Exceeds Q2 Revenue Expectations, Stock Drops Amid Lower Guidance

IBM reported Q2 CY2025 results with revenue up 7.7% YoY to $16.98 billion, beating expectations. However, next quarter's revenue guidance of $15.72 billion was below analysts' estimates. Non-GAAP profit of $2.80 per share was 5.5% above analysts' consensus estimates. IBM's operating margin was 12.9%, down from 15.3% in the same quarter last year. The company's market capitalization is $262.1 billion.

IBM (NYSE: IBM) reported its second-quarter 2025 earnings, showcasing a 7.7% year-over-year (YoY) increase in revenue to $16.98 billion, surpassing analyst expectations. The company's non-GAAP profit per share was $2.80, which was 5.5% above the consensus estimates. However, the company's revenue guidance for the next quarter was below analysts' expectations, at $15.72 billion. IBM's operating margin for the quarter was 12.9%, a decline from 15.3% in the same quarter last year. The company's market capitalization stands at $262.1 billion.

IBM's strong performance in the second quarter can be attributed to its cloud and data platform, which delivered a four-quarter earnings surprise of 7.9%. The company's cloud and data platform generated significant revenue growth, driven by AI-native features and predictive analytics. Additionally, IBM's acquisition of Hakkoda Inc., a data consultancy provider, is expected to strengthen its data expertise and support clients' AI transformation initiatives.

However, IBM faces stiff competition from Amazon Web Services and Microsoft's Azure. The company's ongoing transition to the cloud is a challenging task, and its traditional business model continues to face significant headwinds. Weakness in the traditional business and foreign exchange volatility remain significant concerns. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes.

IBM's stock has gained 53.9% over the past year, outperforming peers like Microsoft but trailing Oracle Corporation. The company's price/earnings ratio is 24.88, higher than the industry mean of 21.95. Despite the strong demand for hybrid cloud and AI, IBM's frequent acquisitions have escalated integration risks, negatively impacting its balance sheet.

IBM is trading at a premium valuation, and investors could wait for a better entry point to cash in on its long-term fundamentals. The company expects its growth to be driven primarily by analytics, cloud computing, and security services. A better business mix, improving operating leverage through productivity gains, and increased investments in growth opportunities will likely be conducive to long-term growth.

References:
[1] https://www.nasdaq.com/articles/ibm-stock-q2-earnings-release-buy-or-not-buy