International Business Machines Corp (NYSE:IBM) reported second quarter earnings that beat expectations on the top and bottom lines, but a miss on software revenue saw its shares fall almost 9% in early trade on Thursday.
Total revenue of $17 billion, up 8% year-over-year, was ahead of the Street consensus of $16.58 billion.
This was driven by a beat in Infrastructure, which saw revenue growth of 14% year-over-year to $4.1 billion.
Software revenue of $7.4 billion, however, was slightly below the consensus of $7.43 billion. This division’s gross margin of 83.9% fell short of estimates of 84%.
IBM posted earnings per share $2.80, which beat the Street consensus of $2.64.
For the full year, the company said it continues to expect constant current revenue growth of at least 5%. It raised its free cash flow forecast, now expecting this to exceed $13.5 billion.
Buy on weakness
Analysts at Wedbush see weakness in IBM’s shares in response to the software revenue miss as a buying opportunity.
“We would be buyers of any knee-jerk weakness this morning in IBM while maintaining our ‘Outperform’ rating and $325 price target,” they wrote.
“We believe that IBM is well-positioned to capitalize on the current demand shift for hybrid and AI applications with more enterprises looking to implement AI for productivity gains and drive long-term profitable growth.”
Jefferies analysts maintained their ‘Hold’ rating on IBM, writing that the company’s software story is solid but not a standout. They held their price target at $282.
“We are constructive on the software execution but with stock trading at 28x 2026 EPS, we prefer Microsoft (31x) for more upside potential,” they wrote.
“While software momentum remains encouraging, we believe risk/reward is balanced with most of the software upside already baked into the multiple.”
The firm noted management’s increased optimism on the macro environment, citing continued global momentum in tech-driven digitization and improved visibility into customer behavior following uncertainty in the first quarter.
“While federal spending was somewhat constrained in 1H 2025, IBM does not anticipate any long-term headwinds,” they wrote.
Shares of IBM fell 8.8% to $257 on Thursday morning.