IBM delivered strong second-quarter results, surpassing Wall Street expectations with $16.98 billion in revenue (versus $16.59 billion estimates) and adjusted earnings of $2.80 per share. However, investor enthusiasm was dampened by softer-than-expected software sales, sending shares down 5% in extended trading despite a nearly 30% year-to-date rally.
The company’s software division, historically a growth driver, reported $7.39 billion in sales, slightly below the $7.41 billion analysts anticipated. CFO Jim Kavanaugh attributed the shortfall to shifting customer investments—away from traditional transaction processing software (which was flat) and toward new AI-powered mainframes. In contrast, IBM’s infrastructure unit, which includes mainframes, outperformed with $4.14 billion in revenue, beating estimates of $3.81 billion.
After five consecutive quarters of declines, IBM’s consulting business grew 3%, reflecting rising demand for AI integration services. The company’s “AI book of business”—combining sales and bookings—jumped $1.5 billion sequentially to $7.5 billion. Despite the rebound, Kavanaugh struck a cautious tone on future consulting growth, citing macroeconomic uncertainty.
Breaking from tradition, IBM did not provide third-quarter guidance, having issued an unusual one-off forecast in April amid the rollout of new U.S. tariffs. While AI momentum and mainframe upgrades are driving near-term gains, the software slowdown raises questions about IBM’s ability to sustain growth across all segments. Investors will be watching closely to see if Big Blue can rebalance its portfolio in the second half of 2024.