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Shares in IBM fell c.5% in after-hours trading despite most of the headline numbers exceeding expectations in yesterday’s Q2 results.
Indeed, looking at the numbers it’s hard to argue that IBM delivered anything other than a robust second quarter, with revenue climbing 8% to $17.0bn, driven primarily by accelerating AI adoption across its client base. The standout performance came from Infrastructure (+14%) and Software (+10%), while Consulting grew a modest 3%.
The company's generative AI book of business reached $7.5bn, underscoring IBM's positioning in the enterprise AI market. AI growth also fed through into significant margin expansion, with gross margins improving 200 basis points to 58.8% and operating margins reaching 18.8%.
Red Hat continues to be a growth engine, posting 16% revenue growth, while the mainframe business (IBM Z) surged 70% YoY. Free cash flow of $2.8bn in the quarter reflects operational discipline.
IBM looks well placed to capitalise on continuing AI-led transformation with management raising the FY free cash flow guidance above $13.5bn and now expecting constant currency revenue growth of 5%+. Indeed subscribers can read more about our assessment of IBM’s UK prospects in our recently published UK SITS Supplier Rankings 2025. So why is Wall Street taking a downer? Possibly something to do with the business not delivering above expectations in the software segment (its largest business) weighing on the stock after a strong recent rally. As such it’s a victim of very high expectations after its stock surged some 30% this year.
Overall, however, the results continue to validate the firm’s focus on hybrid cloud and AI, though Consulting's benign growth suggests continuing competitive pressures in services. A solid quarter that reinforces IBM's enterprise AI story.
Posted by: Marc Hardwick at 09:05
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results