International Business Machines Corp. IBM declined 6.1% in Thursday’s pre-market trading session after its Q2 software revenue fell short of consensus expectations.
What Happened: IBM announced on Wednesday that its Q2 earnings per share stood at $2.80, exceeding the consensus estimate of $2.64. The company’s quarterly revenue also outperformed, reaching $16.977 billion compared to the anticipated $16.576 billion. The company’s generative AI business has seen significant growth, now standing at over $7.5 billion.
However, software revenue rose 10% to $7.39 billion, slightly below analyst expectations of $7.43 billion. Hybrid cloud revenue, including Red Hat, grew 16%, while the software unit’s gross margin was 83.9%, just under the 84.0% estimate.
IBM’s CFO, James Kavanaugh, stated, “Delayed decision making, especially in discretionary projects, as well as prior-year renewals impacted our in-period signings,” reported CNBC.
Meanwhile, Arvind Krishna, IBM’s CEO, stated, “While not a major factor overall, geopolitical tensions are prompting a few clients to move cautiously.”
SEE ALSO: Kevin O’Leary Calls Trump’s No Tax On Home Sales Plan ‘Common Sense’: Shark Says, ‘Families Can Grow Without Getting Punished’
Why It Matters: IBM’s robust Q2 performance comes on the heels of its aggressive deployment of AI and automation tools, as highlighted in its second-quarter results.
Kavanaugh announced that IBM expects to achieve approximately $4.5 billion in annual run-rate productivity savings by the end of 2025, up from $3.5 billion at the end of 2024. This strategy has been crucial in reshaping the company’s internal operations.
Earlier in May, IBM’s AI push was a focal point at its Think 2025 event, with Goldman Sachs noting that the company’s portfolio of software products and services is integral to large enterprise customers as they leverage AI across their organizations.
Despite the software revenue falling below consensus, the CEO emphasized the company’s robust performance, saying, “We once again exceeded expectations for revenue, profit and free cash flow in the quarter.” Krishna credited the success to IBM’s deep innovation and domain expertise, which are vital for clients to deploy and scale AI.
Krishna also raised the company’s full-year free cash flow outlook, anticipating it to surpass $13.5 billion, following a robust first-half performance.
READ MORE:
Image via Shutterstock
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.