IBM is set to announce its Q2 fiscal year 2025 earnings on July 23, 2025 (after U.S. market close).

Market Expectations

Consensus estimates project Q2 revenue of approximately $16.59 billion, up ~5% YoY, with net income reaching $2.49 billion. Adjusted EPS is expected to hit $2.62, reflecting ~8% YoY growth.

Per management’s Q1 earnings call commentary, software and hybrid cloud offerings remain core revenue drivers. Notably, AI-related automation and consulting demand has demonstrated robust growth, positioning it as IBM’s highest-potential segment. Should clients continue expanding AI and cloud investments through H2, this segment’s growth trajectory may accelerate further.

Previous Quarter Review

Q1 revenue was ~$14.54 billion (flat YoY), with net income of $1.51 billion. Adjusted EPS reached ~$1.60, up >10% YoY.

Software and hybrid cloud solutions drove higher value-add to overall revenue and gained stronger client validation. Consulting services and critical technical support remained stable, bolstering IBM’s competitive position across sectors. Software-related revenue maintained strong YoY growth.

Current Quarter Outlook

Cloud-AI Synergy
The deep integration of software and cloud services underpins IBM’s growth. Cloud applications combined with AI enhance operational efficiency and delivery speed, boosting project success rates and client retention.

Hybrid cloud-AI solutions also mitigate fragmented management and tool silos, encouraging large enterprises to increase cloud infrastructure and consulting budgets through H2.

R&D investments focus on AI acceleration, which management highlights as having significant cross-industry potential. While upfront investments may temporarily pressure margins, benefits from renewals and software upsells are expected to offset costs, supporting profit growth in subsequent quarters.

Consulting Demand Centers on Digital Transformation
IBM’s consulting arm continues to see strong demand for digital transformation in manufacturing, finance, and healthcare. AI-driven process optimization and cloud migration remain critical for enterprise upgrades, making generative AI and automation key consulting differentiators. Clients increasingly seek IBM’s patented technologies and proven solutions to consolidate IT resources and enhance efficiency, driving order increments in Q2.

Should enterprise budgets hold steady or expand, consulting revenue may align with market expectations. Global macro uncertainties, however, could prolong approval cycles for certain projects, necessitating phased adjustments.

Hardware & Hybrid Cloud Infrastructure Potential
Hardware (e.g., z-series mainframes) remains a key revenue pillar. Some clients deferred infrastructure updates late last quarter, delaying new mainframe rollouts and pressuring hardware revenue. However, gradual spending recovery in financial services and government verticals may support modest hardware and support-service growth in Q2.

Long-term maintenance and software renewals attached to mainframe products could steadily lift hardware revenue in coming quarters. Additionally, IBM is enhancing infrastructure-cloud management convergence to strengthen cross-industry integration. Rising client recognition of integrated delivery models may spur broader adoption through H2, benefiting Q2-Q3 revenue expansion.

Digital Ecosystem Expansion
IBM’s "platform + ecosystem" strategy incorporates AI, data security, and automation modules via acquisitions and partnerships. This approach reduces deployment friction and enables rapid iteration.

By end-Q1, AI software and consulting bookings saw double-digit climbs, signaling robust demand for scalable solutions. Continued alliance-building and technology integration could unlock mature AI use cases, providing additional revenue momentum.

Analyst Views

Multiple institutions maintain positive ratings:

• BofA Securities raised its target price to $320, citing software-AI convergence as key to improving revenue mix and free cash flow while boosting profitability.

• Evercore lifted its target to $315, optimistic about near-term AI monetization.

• Morgan Stanley remains cautious ("in-line" rating), flagging potential cyclical headwinds in consulting and infrastructure segments.

Overall, sell-side analysts recognize IBM’s commitment to hybrid cloud and AI enablement, expecting sustained growth through FY2025.

Summary

IBM’s software and hybrid cloud momentum, amplified by AI-powered consulting and infrastructure upgrades, reflects a multi-pronged growth strategy.

Persistent cloud-AI demand and cyclical hardware recovery in select industries may push Q2 performance toward positive territory. IBM’s stable growth potential—particularly in integrated AI-hybrid cloud deployments—warrants continued attention.

While broad market optimism exists for IBM’s forward trajectory, cautious monitoring of consulting and infrastructure cyclicality remains prudent.