IBM Q2 Earnings Preview: Reasonable Cash Flow Multiples Ahead

IBM is set to report Q2 '25 financial results on July 23rd. Analysts expect earnings per share of $2.64 on $16.59 billion in revenue and $3.19 billion in operating income. Cash flow multiples are seen as more reasonable compared to previous quarters.

IBM is set to report its Q2 '25 financial results on July 23rd. Analysts expect earnings per share (EPS) of $2.64 on $16.59 billion in revenue and $3.19 billion in operating income [2]. Despite the recent slowdown in IBM's stock rally, the tech giant continues to be a focus for investors, particularly due to its advancements in AI and cloud computing.

IBM's stock has been on a strong run this year, with shares up more than 28% overall. The company returned to record highs for the first time in a decade last September and has rallied further since then. However, a recent pullback has seen IBM stock fall about 5% so far in July, with shares falling below its 21-day moving average earlier this month and approaching a test of the 50-day line [1].

Analysts are projecting a 9% increase in IBM's earnings to $2.65 per share on an adjusted basis, according to FactSet. This would mark an improvement from the roughly 1% sales growth that IBM has posted for three consecutive quarters. Software segment sales are forecast to grow by roughly 10% to $7.43 billion, while infrastructure revenue is expected to grow by 3% to $3.75 billion [1].

IBM's earnings quality has improved since 2022, with free-cash-flow generation returning to the company. The stock is currently trading at 26x and 22x expected '25 and '26 EPS, respectively, but is seen as more attractive on a cash-flow and FCF basis, trading at 15x and 16x those metrics, respectively [2].

The upcoming earnings report will provide an early look at how the enterprise technology market is holding up against government spending cuts and tariff uncertainty. Analysts are projecting a tough near-term setup for IBM, with the consulting segment expected to be relatively muted while infrastructure revenue could get a boost from the company's new AI-focused z17 mainframes [1].

IBM's stock faces a challenging near-term setup, but the potential for continued growth in its AI and cloud computing segments could provide a tailwind. The company's strong historical performance in earnings surprises, with a four-quarter average of 7.9% beating estimates, adds to the anticipation surrounding the upcoming report [3].

References:
[1] https://www.investors.com/news/technology/ibm-stock-q2-earnings-preview-ai-cloud/
[2] https://www.investing.com/analysis/ibm-earnings-preview-can-q2-beat-reverse-aprils-postearnings-selloff-200664145
[3] https://www.nasdaq.com/articles/ibm-stock-q2-earnings-release-buy-or-not-buy