IBM (IBM, Financials) heads into its second-quarter earnings with rising expectations after its stock surged 30% this year — more than quadruple the S&P 500's 7% gain and ahead of tech giants like Nvidia, Meta, and Microsoft.
Bank of America analysts warned the recent outperformance sets up a “tough” near-term backdrop, with mixed Q2 results likely. Still, they reaffirmed their buy rating, citing IBM as a defensive play with improving revenue growth and strong cash flow that could support future acquisitions.
IBM is expected to post revenue of $16.6 billion and adjusted earnings of $2.65 per share for the June quarter, according to FactSet. Analysts anticipate decelerating software growth — down from 9% in Q1 to 6% — but a slight uptick in its Red Hat cloud business, which remains central to the bull case. Transaction processing may slow modestly, but analysts say the weakness is likely not structural.
Jefferies also remains bullish on IBM, calling software “the key pillar” of its outlook and citing strong Red Hat adoption amid enterprise modernization. AI is seen as a relative tailwind across both software and consulting, though Evercore expects the latter to face headwinds in H2 due to federal budget constraints — albeit limited, as federal exposure accounts for just 5% of IBM's total revenue.
Investors will be watching closely to see if IBM can maintain momentum — and justify its market-beating rally — when it reports earnings Wednesday after the bell.
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