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Will Higher Software Revenues Buoy IBM's Earnings in Q2?
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Key Takeaways
IBM's Software revenues are projected to rise 11.6% year over year to $7.52 billion in Q2.
A new Microsoft partnership and the Hakkoda acquisition bolstered IBM's AI and data capabilities.
IBM launched watsonx AI Labs to co-create enterprise AI solutions and boost innovation ecosystem growth.
International Business Machines Corporation (IBM - Free Report) is scheduled to report second-quarter 2025 earnings on July 23. In the to-be-reported quarter, the company is likely to have recorded higher revenues from the Software segment with a strong focus on product innovation and growing clout of watsonx.ai across various sectors.
Factors at Play
The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing.
During the second quarter, IBM extended its multi-year partnership with Microsoft Corporation by establishing a new Microsoft Practice within IBM Consulting. Leveraging the strengths of both companies, the collaboration aims to develop innovative offerings and industry-specific solutions across various verticals such as retail, consumer packaged goods, government, financial services and supply chain. Complementing IBM Copilot Runway and IBM Consulting Azure OpenAI Services, it intends to deliver customized solutions to help businesses unlock new growth opportunities, navigate complex AI, facilitate seamless cloud transition and accelerate digital transformation.
In the quarter, IBM acquired Hakkoda Inc., a prominent data consultancy provider, for an undisclosed amount. The acquisition is expected to strengthen IBM’s data expertise and augment its capability to support clients’ AI transformation initiatives. IBM will also gain access to Hakkoda’s comprehensive portfolio of generative AI tools that effectively expedite data modernization projects and offer clients the necessary flexibility, scalability and strategic guidance to promote their innovation journey.
In the quarter under review, IBM launched watsonx AI Labs in New York City to accelerate AI adoption. This collaborative hub of IBM researchers and engineers with startups, scale-ups and some of the world's largest enterprises will seek to co-create agentic AI solutions for clients and foster the growth of the innovation ecosystem. The watsonx AI Labs will connect IBM's enterprise resources and expertise with the next generation of AI developers seeking to build breakthrough AI applications for businesses. Leveraging the rich technology landscape of the city, the lab aims to attract local talent through collaborations with local universities and research institutions to help build new businesses and applications that will reshape AI for the enterprise. These are likely to have translated into incremental revenues in the Software segment.
Overall Expectations
The Zacks Consensus Estimate for Software revenues is pegged at $7.48 billion, indicating an improvement from $6.74 billion recorded in the year-ago quarter. Our estimate for revenues from Software is pegged at $7.52 billion, suggesting an 11.6% rise year over year.
The Zacks Consensus Estimate for total revenues for the company stands at $16.58 billion. It generated revenues of $15.77 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.64 per share, indicating growth from $2.43 in the year-earlier quarter.
International Business Machines Corporation Price and EPS Surprise
Our proven model does not predict an earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
IBM has an ESP of +1.35% with a Zacks Rank #4 (Sell).
Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:
CommScope Holding Company, Inc. (COMM - Free Report) is set to release quarterly numbers on Aug. 7. It has an Earnings ESP of +19.18% and sports a Zacks Rank #1.
The Earnings ESP for Qualcomm Incorporated (QCOM - Free Report) is +0.60% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on July 30.
The Earnings ESP for Genpact Limited (G - Free Report) is +0.94% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Aug. 7.
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Will Higher Software Revenues Buoy IBM's Earnings in Q2?
Key Takeaways
International Business Machines Corporation (IBM - Free Report) is scheduled to report second-quarter 2025 earnings on July 23. In the to-be-reported quarter, the company is likely to have recorded higher revenues from the Software segment with a strong focus on product innovation and growing clout of watsonx.ai across various sectors.
Factors at Play
The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing.
During the second quarter, IBM extended its multi-year partnership with Microsoft Corporation by establishing a new Microsoft Practice within IBM Consulting. Leveraging the strengths of both companies, the collaboration aims to develop innovative offerings and industry-specific solutions across various verticals such as retail, consumer packaged goods, government, financial services and supply chain. Complementing IBM Copilot Runway and IBM Consulting Azure OpenAI Services, it intends to deliver customized solutions to help businesses unlock new growth opportunities, navigate complex AI, facilitate seamless cloud transition and accelerate digital transformation.
In the quarter, IBM acquired Hakkoda Inc., a prominent data consultancy provider, for an undisclosed amount. The acquisition is expected to strengthen IBM’s data expertise and augment its capability to support clients’ AI transformation initiatives. IBM will also gain access to Hakkoda’s comprehensive portfolio of generative AI tools that effectively expedite data modernization projects and offer clients the necessary flexibility, scalability and strategic guidance to promote their innovation journey.
In the quarter under review, IBM launched watsonx AI Labs in New York City to accelerate AI adoption. This collaborative hub of IBM researchers and engineers with startups, scale-ups and some of the world's largest enterprises will seek to co-create agentic AI solutions for clients and foster the growth of the innovation ecosystem. The watsonx AI Labs will connect IBM's enterprise resources and expertise with the next generation of AI developers seeking to build breakthrough AI applications for businesses. Leveraging the rich technology landscape of the city, the lab aims to attract local talent through collaborations with local universities and research institutions to help build new businesses and applications that will reshape AI for the enterprise. These are likely to have translated into incremental revenues in the Software segment.
Overall Expectations
The Zacks Consensus Estimate for Software revenues is pegged at $7.48 billion, indicating an improvement from $6.74 billion recorded in the year-ago quarter. Our estimate for revenues from Software is pegged at $7.52 billion, suggesting an 11.6% rise year over year.
The Zacks Consensus Estimate for total revenues for the company stands at $16.58 billion. It generated revenues of $15.77 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.64 per share, indicating growth from $2.43 in the year-earlier quarter.
International Business Machines Corporation Price and EPS Surprise
International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote
Earnings Whispers
Our proven model does not predict an earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
IBM has an ESP of +1.35% with a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Stocks to Consider
Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:
CommScope Holding Company, Inc. (COMM - Free Report) is set to release quarterly numbers on Aug. 7. It has an Earnings ESP of +19.18% and sports a Zacks Rank #1.
The Earnings ESP for Qualcomm Incorporated (QCOM - Free Report) is +0.60% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on July 30.
The Earnings ESP for Genpact Limited (G - Free Report) is +0.94% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Aug. 7.