MW IBM was the Dow's worst performer today. 'Deep breath...It's more than OK,' one analyst says.

By Bill Peters and James Rogers

Melius Research analysts say they're 'buyers on weakness'

Shares of International Business Machines Corp. fell 6.6% on Thursday following quarterly results a day earlier, making the IT giant the biggest loser on the Dow Jones Industrial Average for the day. But some analysts are saying it's not time to freak out yet.

"Deep breath, it's just a first quarter," Melius Research analysts said in a research note late Wednesday.

They added: "It's more than OK: 1Q is always IBM's 'worst' of the year, due to its seasonal patterns - and IBM beat this time."

They said the stock drop after the first-quarter results, which topped Wall Street's expectations, may have been due to slowing sales trends for IBM's $(IBM)$ open-source software unit Red Hat, which they said accounts for more than 10% of IBM's revenue. Weaker demand in IBM's consulting segment, they said, may have also contributed to the drop.

However, they said that Red Hat's bookings - a gauge of demand for the software - were trending above sales. And they said that IBM had a lot less vulnerability than rivals to DOGE, or the so-called Department of Government Efficiency, which is trying to aggressively shrink the federal government.

"We are buyers on weakness since IBM is still entering a big mainframe cycle this quarter, software is set to accelerate from here with improvement from Red Hat and guidance for flat consulting revenues seems reasonable," the analysts said.

IBM this month introduced its new z17 mainframe that it says is "engineered for the AI age."

Company executives on Wednesday said IBM's customers hadn't changed their purchasing patterns yet, amid concerns that global trade frictions might keep businesses from spending more on tech as they grow more cautious on the economy.

Still, Chief Executive Arvind Krishna, during IBM's earnings call, said that near-term uncertainty "may cause clients to pause and take a wait-and-see approach." He also warned that IBM's consulting services were more susceptible to discretionary pullbacks.

Markets have roiled in the wake of President Donald Trump's sweeping wave of tariffs targeting a host of countries, most notably China. However, IBM maintained its full-year outlook for cash flow and some sales.

Set against that backdrop, data from BondCliQ showed mixed flows on Thursday for IBM's bonds, with selling followed by buying in the afternoon. IBM has extensive outstanding bonds, as the following chart from BondCliQ shows.

Earlier this year, IBM revealed in an SEC filing that it has clinched a host of debt-securities deals. Companies that include BNP Paribas Securities Corp., Barclays Capital Inc., Deutsche Bank Securities Inc., and RBC Capital Markets are serving as joint bookrunning managers for the agreements.

In a note released Thursday, GimmeCredit analyst Dave Novosel pointed out that IBM added $7 billion of debt during the first quarter to fund its acquisition of cloud software company HashiCorp, which closed in February. "The increase in debt pushed core leverage to 3.5x," he wrote. "However, considering that free cash flow is likely to exceed $7 billion this year, we expect some debt reduction as the year goes on, taking leverage toward 3x."

Opinion: Nervous about the recent bond-market volatility? Here's how to handle it.

IBM shares are up 4.3% in 2025, compared with the S&P 500 index's SPX decline of 7%.

-Bill Peters -James Rogers

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April 24, 2025 16:43 ET (20:43 GMT)

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