IBM's software sales disappoint, eclipsing AI mainframe revival
IBM's shares fell 5 per cent in extended trading, after a nearly 30 per cent rise this year driven by investors betting on prioritized software spending as businesses navigated macroeconomic uncertainty and ongoing trade negotiations.
"You're seeing the stock pull back, because there's just not a lot of room to miss," said Dan Morgan, senior portfolio manager at Synovus Trust, which holds shares in IBM.
"This would be more evidence that software is not growing at the pace that the street was expecting."
IBM's software segment, which has traditionally been a bright spot, reported sales of $7.39 billion, missing estimates of $7.41 billion.
Still, the Big Blue reported revenue of $16.98 billion for the June quarter, beating analysts' average estimate of $16.59 billion, according to data compiled by LSEG. Adjusted earnings of $2.80 per share also beat estimates.
The infrastructure segment, which houses its mainframe, reported revenue of $4.14 billion, beating estimates of $3.81 billion.
Sales of IBM's latest AI-specialized mainframe kicked off in June, boosting second-quarter revenue.
Its "AI book of business," which combines bookings and actual sales, grew to $7.5 billion, up $1.5 billion from the previous quarter.
Investors might be unimpressed, however, as the book is "cumulative, not revenue, and lacks granularity," said Michael Ashley Schulman, Running Point Capital's chief investment officer.
IBM did not provide a forecast for the third quarter, after it broke tradition in April and issued a one-off quarterly outlook to give investors more clarity at a time when U.S. President Donald Trump's global tariffs were first going into effect.
"That quarterly guidance was really driven by the unprecedented volatility of the foreign exchange markets" finance chief Jim Kavanaugh told Reuters.
"What is different over the past 90 days — the FX world is kind of stabilized ... so we reverted back to our standard practice."
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