A month has gone by since the last earnings report for IBM (IBM). Shares have lost about 8.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is IBM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its latest earnings report in order to get a better handle on the important catalysts.
IBM Surpasses Q2 Earnings Estimates on Solid Demand Trends
IBM reported strong second-quarter 2025 results, with adjusted earnings and revenues beating the respective Zacks Consensus Estimate.
The company witnessed healthy demand trends for hybrid cloud and AI solutions with a client-focused portfolio and broad-based growth. IBM exceeded the target metrics related to revenue, profitability and cash flow growth for the quarter. Despite economic uncertainty stemming from geopolitical issues, supply chain vulnerabilities, constrained federal spending and the evolving landscape of interest rates and inflation levels, the company expects to deliver sustainable growth through advanced technology and deep consulting expertise.
Net Income
On a GAAP basis, net income for the reported quarter was $2.19 billion or $2.31 per share compared with $1.83 billion or $1.96 per share in the year-ago quarter. The significant improvement in GAAP earnings was primarily led by top-line growth.
Excluding non-recurring items, non-GAAP net income from continuing operations was $2.80 per share compared with $2.43 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 16 cents.
Quarter Details
Quarterly total revenues increased to $16.98 billion from $15.77 billion on strong demand for hybrid cloud and AI, driving growth in the Software segment. On a constant currency basis, revenues were up 5% year over year. The top line exceeded the consensus estimate of $16.58 billion.
Gross profit improved to $9.98 billion from $8.95 billion in the prior-year quarter, resulting in respective gross margins of 58.8% and 56.8% owing to a strong portfolio mix. Total expenses increased to $7.38 billion from $6.73 billion due to higher selling, general and administrative expenses and research and development costs.
Segmental Performance
Software: Revenues improved to $7.39 billion from $6.74 billion, driven by growth in Hybrid Cloud (Red Hat, up 16%), Automation (16%), Data (9%) and Transaction Processing (1%). The segment’s revenues missed our estimate of $7.52 billion despite solid hybrid cloud traction. Segment profit was $2.3 billion compared with $2.1 billion in the year-ago quarter for margins of 31.1% and 31.3%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across automation and generative AI offerings like watsonx.
Consulting: Revenues were $5.31 billion compared with $5.18 billion a year ago as clients prioritized spending and pulled back on discretionary projects. The segment’s revenues beat our estimate of $5.17 billion. Segment profit improved to $562 million from $463 million for margins of 10.6% and 8.9%, respectively.
Infrastructure: Revenues were $4.14 billion compared with $3.64 billion on higher demand for hybrid and distributed infrastructure. Segment profit was $965 million compared with $654 million in the year-ago quarter, for respective margins of 23.3% and 17.9%. This reflected strength in the z17 program as AI use cases resonated strongly with clients. Higher investments in the business across areas like AI, hybrid cloud and quantum also buoyed segment performance.
Financing: Revenues declined to $166 million from $169 million a year ago. Segment profit was up to $179 million from $77 million in the year-ago quarter for respective margins of 107.9% and 45.3%.
Cash Flow & Liquidity
During the quarter, IBM generated $1.7 billion in cash from operations compared with $2.07 billion in the year-ago quarter, bringing the respective tallies for the first six months of 2025 and 2024 to $6.07 billion and $6.23 billion. Free cash flow was $2.84 billion in the quarter, up from $2.61 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of June 30, 2025, the company had $11.94 billion in cash and cash equivalents with $55.22 billion of long-term debt.
Outlook
For 2025, the company expects revenues to grow at least 5% on a constant currency basis, driven by a strong portfolio mix, operating leverage and yield from productivity initiatives. Free cash flow is expected to be in the vicinity of $13.5 billion.