IBM's software sales disappoint, eclipsing AI mainframe revival

IBM’s Q2 Software Revenue Misses Estimates

International Business Machines Corp (IBM) reported its second-quarter 2025 earnings, revealing that **software revenue came in below analyst expectations** despite overall gains in artificial intelligence and mainframe segments. The news sent IBM shares down 5.4% in after-hours trading.

Key Financial Highlights

  • Q2 total revenue: $16.98 billion, beating analysts’ estimates of $16.59 billion
  • Q2 adjusted profit: $2.80 per share, above estimates of $2.64 per share
  • Software revenue: $7.39 billion, missing the $7.41 billion consensus
Despite topping overall revenue and profitability forecasts, the **software segment’s shortfall dampened investor enthusiasm** and overshadowed progress elsewhere[1][4].

AI and Mainframe Growth Not Enough to Sway Investors

IBM has been investing heavily in Watsonx and hybrid AI solutions, integrating these tools throughout its software portfolio. These efforts helped boost software sales by 10% year-over-year[4]. However, the modest underperformance versus Wall Street expectations was enough to cause concern, given investor optimism around IBM’s AI initiatives[4]. On the mainframe side, a revival in demand—particularly for processing large, business-critical workloads—contributed positively to infrastructure results. Still, the impact was not sufficient to fully counterbalance weakness in software.

Consulting Sees Modest Growth Amid Broader Challenges

IBM’s consulting division showed some resilience, posting a 3% revenue increase to $5.31 billion[4]. Management cited ongoing “growth slumps” and a challenging environment for discretionary IT projects, with clients delaying spending and decision-making due to macroeconomic uncertainty[4].

Market Reaction and Outlook

Despite IBM’s efforts to transform and grow through next-generation AI and hybrid cloud offerings, **Wall Street analysts maintained a “hold” rating**, with concerns focused on muted software growth prospects[1]. Though the stock is up more than 28% year-to-date, IBM’s Q2 results highlight lingering challenges in consistently translating AI and cloud hype into dependable revenue gains.

Summary of Analyst Sentiment

  • IBM’s strong recurring revenues and profitability are not insulating it from high expectations in faster-growing areas like AI-driven software[2][4]
  • The company faces headwinds as clients tighten IT budgets and delay discretionary projects[4]
  • Overall sentiment remains cautious, with the focus on IBM’s ability to accelerate software momentum going forward[1][4]

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