International Business Machines Corp. (NYSE: IBM) is set to report its Q1 earnings today after the closing bell, with a conference call after the announcement.
As IBM navigates the changing landscape of technology, traders and investors will want to monitor the progress in AI, hybrid cloud and other strategic highlights.
Despite its accomplishments, IBM remains exposed to challenges such as pressure from competition, infrastructure decline and trade war concerns.
Earnings Outlook and Estimates
- Earnings Per Share (EPS): $1.42
- Revenue: $14.4 billion
IBM has a strong track record of surpassing earnings estimates, delivering an average four-quarter earnings surprise of 6.1% and a 5.1% beat in Q4 2024. However, the current estimate is lower than the EPS of $1.68 and revenue of $14.5 billion reported in the same quarter last year. ⁽¹⁾
Currently, IBM holds a market capitalization of $221 billion. Its trailing twelve-month revenue stands at $63 billion, with a solid operational performance yielding $10 billion in operating profits and a net income of $6.0 billion. ⁽²⁾
Generative AI Growth Segment
IBM’s generative AI, particularly through its Watsonx platform, achieved $5 billion in book of business in Q4 2024. The main drivers are software (25%) and consulting (75%).
It is expected that strategic partnerships will improve IBM’s hybrid AI solutions, such as the enlarged relationship with NVIDIA to scale AI workloads and integrate Watsonx with NVIDIA Inference Microservices. ⁽³⁾
These efforts focus on open technologies, data management, and governance, positioning IBM to capitalize on growing enterprise AI demand. Updates on AI adoption and customer behavior amid economic uncertainty will be critical during the earnings call.
Software Segment Strength
With revenue growth predicted in the mid-teens for 2025, Red Hat, the American software company and subsidiary of IBM, is still a growth engine. ⁽⁴⁾
Red Hat’s performance is expected to be supported due to recent acquisitions like Neural Magic. Despite its EPS and cash flow loss in the short term, IBM is set to acquire HashiCorp for $6.4 billion, in which the acquisition is still pending regulatory approval, and could boost IBM’s cloud and IT automation products and boost revenue for 2025. ⁽⁵⁾
Consulting Segment and Strategic Collaborations
It is anticipated that IBM’s consulting division will generate $5.1 billion. Partnerships with Juniper Networks and Walmart GoLocal are expected to increase sales.
The Walmart alliance streamlines retailer workflows by integrating GoLocal’s delivery capabilities into IBM’s order management system. In the meanwhile, the Juniper agreement optimizes IT network management by utilizing Watsonx and Juniper’s Mist AI, improving user experience and cutting expenses.
The expansion of generative AI is anticipated to be further supported by recent consulting acquisitions like Hakkoda and AST. ⁽⁶⁾
Infrastructure and z17 Mainframe Cycle
IBM’s Infrastructure segment faces a projected 5% year-over-year revenue decline in Q1 2025 due to the waning z16 mainframe cycle. However, the upcoming z17 mainframe refresh, expected mid-2025, could drive infrastructure revenue growth up to 6% for the full year. This transition will be a focal point for investors seeking clarity on IBM’s hardware outlook. ⁽⁷⁾
Global Tariffs, Macroeconomic, and Competitive Challenges for IBM
Global tariffs and macroeconomic uncertainty threatens IBM’s pricing, demand, and consulting segment. Bank of America predicts IBM may raise prices by 2% to counter tariffs, with a 5% demand drop—milder than competitors like Dell or HP, thanks to IBM’s US-based manufacturing and low hardware cost exposure.
Despite low-single-digit growth in Q4 2024, macroeconomic headwinds could pressure consulting, though federal consulting is likely insulated from policy disruptions. ⁽⁸⁾
IBM is dealing with pressure from competition and operation issues. While gaining traction in hybrid cloud and AI, it faces fierce competition from Amazon Web Services and Microsoft Azure. The sluggish development of a cloud-centric strategy is brought on by traditional business weaknesses, volatile foreign exchange rates, and declining margins as a result of price rivalry. Profitability continues to fluctuate. ⁽⁹⁾
With large goodwill and intangible assets, IBM’s frequent acquisitions put strain on its balance sheet and raise integration risks. One such purchase is HashiCorp, which is undergoing approval in the United Kingdom and Australia. Product introductions may be delayed due to competitive pressures and limited cost-cutting choices, which would further affect profits.
