International Business Machines (IBM) is set to report its second-quarter earnings on July 23 after the market closes. Wall Street predicts that IBM will generate about $16.6 billion in revenue and post earnings of roughly $2.65 per share, a 9% increase from the same quarter last year. Most of the growth is expected to come from IBM’s Software segment, which is expected to rise by 11%, while the Consulting division may see a smaller increase of about 0.6%. Meanwhile, the Hybrid Infrastructure segment is likely to see a slight decline.
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Interestingly, recent trends support this outlook. In the first quarter, IBM’s Software revenue grew by 7% year-over-year to $6.3 billion (as per the image below), driven by strong performances in hybrid cloud and automation. In addition, IBM has continued to acquire companies such as HashiCorp, DataStax, and SeekAI in order to improve its AI and backend service capabilities. The company is also investing heavily in its AI platform, watsonx, and in quantum computing. As a result, analysts believe that these moves, along with the expected improvements in profit margins, could help IBM deliver consistent earnings growth.
However, there are still risks that investors should watch for. Indeed, IBM’s Consulting and Infrastructure units remain under pressure. As previously mentioned, the Infrastructure segment is expected to decline, while the Consulting business is anticipated to show only modest gains. Therefore, investors should pay close attention to whether IBM updates its guidance, particularly in these weaker areas, and whether it continues to improve margins.
What Do Options Traders Anticipate?
Using TipRanks’ Options tool, we can see what options traders are expecting from the stock immediately after its earnings report. The expected earnings move is determined by calculating the at-the-money straddle of the options closest to expiration after the earnings announcement. If this sounds complicated, don’t worry, the Options tool does this for you. Indeed, it currently says that options traders are expecting a 6.3% move in either direction.
What Is the Target Price for IBM?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on IBM stock based on nine Buys, five Holds, and two Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average IBM price target of $287.53 per share implies 1% upside potential. At the same time, TipRanks’ AI Analyst has an Outperform rating and a $316 per share price target.
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