MW IBM says it's bullish despite 'fluid' economy, but stock falls after hours

By Bill Peters

Tech company sticks with its expectations for free cash flow

Tech-infrastructure giant International Business Machines Corp. on Wednesday offered a solid sales outlook despite worries about the impact of a global trade war on the economy and tech spending, but its shares still fell after hours.

IBM $(IBM)$ said it expects second-quarter revenue of $16.4 billion to $16.75 billion. That was above FactSet forecasts for $16.31 billion.

The company - which offers software, consulting services and network infrastructure - also stuck with its outlook for full-year constant-currency sales growth, or that which factors out currency fluctuations, of "at least 5 percent." And it said it continued to expect around $13.5 billion in free cash flow over that time.

"We remain bullish on the long-term growth opportunities for technology and the global economy," Chief Executive Arvind Krishna said in a statement. "While the macroeconomic environment is fluid, based on what we know today, we are maintaining our full-year expectations for revenue growth and free cash flow."

IBM reported adjusted earnings per share of $1.60, on revenue of $14.5 billion for the first quarter, a 1% year over year gain, helped by growth in its software segment.

Analysts polled by FactSet expected IBM to report first-quarter adjusted earnings per share of $1.42, on revenue of $14.39 billion.

Shares were down 4.4% after hours on Wednesday.

IBM reported the results as analysts wait to see what kind of impact, if any, the U.S.' global trade war has on corporate spending on IT, cloud computing and artificial intelligence. Management on Wednesday said that demand for generative AI was still strong.

In January, when IBM last reported quarterly results, Wall Street analysts debated whether its work in artificial intelligence was underappreciated. The company at that time reported rising software sales and AI-related demand, even as other segments struggled.

However, software analysts at Jefferies, in a note earlier this month, suggested that customers might be getting a bit more conservative.

"Our Q1 checks suggest 'no one hit the panic button' but 'customers are going back to basics,' and AI workloads will likely take the back burner from here on out," they said.

BofA analysts, in a note this month, said said that IBM did the vast majority of its manufacturing in the U.S. However, analysts at Oppenheimer said that IBM's consulting business could take a hit, as the Department of Government Efficiency, or DOGE, tries to cut government spending and scrutinize federal contracts.

"Our conversations with industry experts indicate that while no cuts to IBM's consulting contracts have been announced, certain consulting areas such as application development are under review," the Oppenheimer analysts said.

And as fears of a recession intensify, they noted that IBM has held up in previous downturns.

"Looking at the last 50 years, we have had seven recessions," they said. "IBM has outperformed the S&P 500 during six of those periods (exception in 1979-1980, during the mainframe-to-PC transition)."

-Bill Peters

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April 23, 2025 16:37 ET (20:37 GMT)

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