IBM stock fell Thursday despite the tech giant reporting first-quarter earning and sales ahead of expectations. The tech giant gave a stronger-than-expected sales forecast for the current quarter, but a top executive acknowledged an "uncertain" operating environment.
Big Blue announced late Wednesday that it earned an adjusted $1.60 per share on sales of $14.54 billion for the March-ended quarter. That came in ahead of analyst estimates that IBM would earn an adjusted $1.42 per share on sales of $14.39 billion. Sales increased 1% year-over-year while adjusted earnings decreased by 5% on a per-share basis.
IBM told investors it expects revenue of $16.4 billion to $16.75 billion for the current second quarter. That topped the $16.3 billion Q2 sales estimate that analysts had penciled in for IBM prior to the report.
"While no one is immune to uncertainty, we enter this environment from a position of relative strength and resiliency," IBM Chairman and CEO Arvind Krishna said on a call with analysts Wednesday. "Our clients run the world's most essential processes. Our diversity across businesses, geographies, industries and large enterprise clients position us well to navigate the current climate."
IBM also reiterated its overall 2025 expectations that it first gave in January: constant-currency revenue growth of at least 5% and free cash flow of $13.5 billion for the full year.
On the stock market today, IBM stock fell 6.6% to close at 229.31. The decline came as some Wall Street analysts noted that IBM's software related revenue growth slowed compared to recent quarters. The first quarter report came with high expectations. IBM shares entered trading Thursday 33% higher compared to 12 months ago, outperforming a stock market that has slumped this year.
IBM Stock: Tariff, DOGE Impact
IBM does not typically provide quarterly sales forecasts. But Chief Financial Officer James Kavanaugh told analysts Thursday that the company wanted to provide greater transparency given the "very dynamic and uncertain macroeconomic environment."
That uncertainty includes questions about the impact of President Donald Trump's tariffs on the broader market, as well as concerns about cuts to federal IT contracts from the Elon Musk-led DOGE effort. The company addressed both concerns on the investor call Wednesday.
For tariffs, Krishna noted that goods imported to the U.S. represent "less than 5% of our overall spend, and under current U.S. tariff policy, the impact to IBM is minimal."
Meanwhile, Kavanaugh told analysts that IBM is "not immune" to the government spending cuts driven by the DOGE initiative. But he said that U.S. government contracts represent less than 10% of IBM consulting revenue.
"It's hard to predict where that goes over the rest of the year," Krishna added. "So, I'm not going to try and make that prediction on DOGE and consulting, except to caution ... if there is pressure in the economy, consulting tends to see headwinds before other parts of the business."
IBM Growth Led By Software
Krishna said the company's performance was led by strength for its software products.
"There continues to be strong demand for generative AI and our book of business stands at more than $6 billion inception-to-date, up more than $1 billion in the quarter," Krishna said.
Software revenue rose 7% to of $6.34 billion. That was slightly ahead of the $6.33 billion consensus estimate from analysts.
However, analysts with Jefferies noted that software sales growth slowed from 10% growth in the fourth quarter following four quarters were sales growth accelerated.
"Software momentum continued to drive top-line growth, though we note an overall slowdown in the broader portfolio including Red Hat growth decelerations to 12% year-over-year vs 16% last quarter, Automation growth at 14% vs 15% last quarter, and Transaction Processing flat vs 10% last quarter," wrote Jefferies analyst Brent Thill, who holds a neutral hold call on IBM stock.
Consulting revenue, meanwhile, fell 2% year-over-year to $5.07 billion. That was slightly better than the $5.05 billion projected by analysts. And IBM's infrastructure revenue decreased 6% to $2.89 billion, vs. estimates for $2.76 billion.
IBM Stock Is Up 4% This Year
With Thursday's slide, IBM Shares have gained 4% so far this year, compared to the S&P 500 falling 6.7% year-to-date. Some analysts believe IBM can maintain the "safe haven" status for investors that allowed the company's shares to outperform during previous economic slowdowns.
"Despite seeing significant pressure that may impact discretionary projects for IBM products and services, we believe that IBM is well-positioned to navigate the macro storm and 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," Wedbush analyst Daniel Ives wrote Thursday.
Ives reiterated an outperform call with a price target of 300.
Coming into the report, IBM stock had an IBD Composite Rating of 81 out a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, IBM's IBD Relative Strength Rating is 91 out of 99. The RS Rating means that IBM has outperformed 91% of all stocks in IBD's database over the past year.
