Key Takeaways
IBM (IBM) shares sank Thursday, as slightly weaker-than-expected software revenue growth is weighing on a second-quarter earnings report that largely topped estimates.
After the closing bell Wednesday, IBM posted revenue of $16.98 billion, up 8% year-over-year, along with adjusted earnings per share of $2.80, each better than estimates compiled by Visible Alpha. IBM’s software revenue, however, came in at $7.39 billion, narrowly below the $7.43 billion analyst consensus.
IBM CEO Arvind Krishna said in its earnings call that “geopolitical tensions are prompting a few clients to move cautiously,” and noted that “US federal spending was also somewhat constrained in the first half, but we do not expect it to create long-term headwinds.”
Shares were down 8% in recent trading to just below $260. With Thursday’s move, they remain up about 18% since the start of this year.
Analysts Highlight Slowing Software Sales Growth as Weak Point
UBS analysts noted that IBM’s organic software revenue growth slowed to 5% in the quarter, compared to 6% and 8% growth, respectively, in the company’s previous two quarters. The analysts kept their “sell” rating on the stock, but lifted their price target to $200 from $195.
Bank of America analysts cut their price target to $310 from $320, while maintaining their “buy” rating, saying that they “remain bullish on overall company trajectory” even as the lackluster growth of IBM’s software segment “has turned into a show me story” for the second half of this year.
Analysts from Wedbush said they “believe that IBM is well-positioned to capitalize on the current demand shift for hybrid and AI applications with more enterprises looking to implement AI for productivity gains and drive long-term profitable growth,” and added they they “would be buyers of any knee-jerk weakness” in the stock on Thursday.
This article has been updated since it was first published to reflect more recent share price values.