IBM beats Q2 estimates, but software slump overshadows AI gains

IBM reported $16.98 billion in revenue and $2.80 per-share earnings for Q2, beating Wall Street estimates, but lingering concerns over weaker software sales overshadowed the company’s strong headline performance and raised investor caution

IBM posted better-than-expected revenue and profit for the second quarter of 2025, buoyed by renewed demand for its AI-enhanced mainframe systems. However, a shortfall in software sales tempered investor optimism, sending shares down 5% in after-hours trading.

The tech giant reported total revenue of $16.98 billion, exceeding Wall Street’s estimate of $16.59 billion. Adjusted earnings stood at $2.80 per share, also ahead of expectations. Despite these headline beats, concerns emerged around the performance of IBM’s software division — historically a key growth driver.

Software revenue for the quarter came in at $7.39 billion, slightly below analysts' forecast of $7.41 billion. According to CFO Jim Kavanaugh, some customers shifted spending toward IBM’s newly upgraded AI-powered mainframes, which inadvertently impacted transaction processing revenue — a component of the software segment.

“Software isn’t expanding at the pace expected,” noted Dan Morgan, senior portfolio manager at Synovus Trust, which holds IBM shares. “There’s little room for disappointment, given the stock’s strong run this year.”

AI momentum, mainframes drive growth

The infrastructure segment, which includes IBM’s mainframe business, outperformed with $4.14 billion in revenue, topping the $3.81 billion estimate. Consulting revenue also rose 3%, ending a five-quarter decline, as more enterprises sought guidance on AI integration. Still, Kavanaugh remained cautious, citing an uncertain demand environment.

IBM’s AI-focused business portfolio, combining bookings and realized sales, expanded to $7.5 billion — a $1.5 billion increase from the previous quarter, underscoring rising interest in enterprise AI solutions.

However, the company chose not to issue third-quarter guidance, continuing a move it began in April amid evolving global economic conditions and trade dynamics.