International Business Machines (IBM) will report Q2 earnings on Wednesday, with investors watching for growth in Red Hat Technologies, foreign exchange tailwinds, and continued weakness in consulting, BofA Securities said in a report emailed Monday.

The firm expects organic software growth to slow from 9% in Q1 to about 6% in Q2, despite support from HashiCorp and stronger Red Hat Technologies, while Transaction Processing revenue is also seen easing slightly, BofA said.

"While bears could argue such a deceleration would continue into the future, we view the [Transaction Processing] deceleration as not structural and expect IBM to benefit from share gains in RHT from VMware," BofA added.

The company's consulting business is expected to "remain relatively muted," consistent with earlier guidance and trends seen among peers. In contrast, the Infrastructure segment is set to grow, supported by an estimated $900 million quarter-over-quarter boost from the z17 mainframe cycle, the report said.

Full-year free cash flow is estimated at $13.6 billion, slightly ahead of IBM's $13.5 billion guidance, while revenue and earnings per share estimates for fiscal 2025 move to $65.82 billion and $10.92, respectively.

"We believe IBM will embark on further cost cutting, and enhance its services and software offerings through acquisitions. Longer term, we expect IBM to take share in IT spending with its Cloud and AI initiatives," BofA said.

BoA reiterated a buy rating on IBM's stock, and kept a price target of $320.

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