IBM shares down 5.1% premarket after company misses Q2 software sales estimates

IBM shares down 5.1% premarket after company misses Q2 software sales estimates

Title: IBM Shares Down 5.1% Premarket After Q2 Software Sales Miss Estimates

International Business Machines Corporation (IBM) experienced a significant drop in its stock price premarket, falling by 5.1% after reporting weaker-than-expected sales in its software segment. The company's second-quarter software unit sales increased by 10% to $7.39 billion, slightly below analysts’ average estimate of $7.49 billion [1]. This underperformance in the software segment, which has been a key driver of investor optimism, has dampened enthusiasm among shareholders.

IBM's overall revenue for the period ended June 30 increased by 8% to $17 billion, surpassing analysts’ average estimate of $16.6 billion. The company's consulting business, which has been experiencing a growth slump, generated a revenue bump of 3% to $5.31 billion [1]. However, the software segment's underperformance has overshadowed the positive revenue growth.

The company's shares declined about 3.5% in extended trading after closing at $282.01 in New York. This decline is attributed to the disappointment in software sales, which has been a critical area for IBM's future growth prospects. The stock has jumped 28% this year, outpacing many technology peers [1].

IBM's management has emphasized software and services as the path to rejuvenation since the 1990s, with recent progress under Chief Executive Officer 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 [1].

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 [1]. 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. Chief Financial Officer Jim Kavanaugh emphasized that IBM is targeting steeper cost reductions to improve margins [1].

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 [2]. 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 [2].

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.bloomberg.com/news/articles/2025-07-23/ibm-posts-lukewarm-software-results-dimming-investor-enthusiasm
[2] https://www.nasdaq.com/articles/ibm-ibm-surpasses-q2-earnings-and-revenue-estimates