IBM Stock Before Q2 Earnings Release: To Buy or Not to Buy?

International Business Machines Corporation IBM is scheduled to report second-quarter 2025 earnings on July 23. The Zacks Consensus Estimate for sales and earnings is pegged at $16.59 billion and $2.64 per share, respectively. Earnings estimates for IBM for 2025 and 2026 have remained static at $10.95 and $11.66 per share, respectively, over the past 60 days.

IBM Estimate Trend

Earnings Surprise History

The cloud and data platform delivered a four-quarter earnings surprise of 7.9%, on average, beating estimates on each occasion. In the last reported quarter, the company pulled off an earnings surprise of 12.7%. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

Earnings Whispers

Our proven model does not predict an earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. 

IBM currently has an ESP of 0.00% with a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Shaping Upcoming Results

During the second quarter, IBM collaborated with the Masters tournament organizers to launch a wide range of artificial intelligence (AI)-native features to deliver an immersive digital experience for golf fans. The company offered predictive analytics during the game, forecasting how specific holes were likely to be played based on past information. Data-backed recaps throughout the tournament of how each hole had played were available on the APP and the website. These are likely to have generated incremental revenues for the Consulting segment.

The Zacks Consensus Estimate for revenues from the Consulting segment is pegged at $5.21 billion, while our model projects revenues of $5.17 billion.

During the to-be-reported quarter, IBM extended its multi-year partnership with Microsoft Corporation MSFT by establishing a new Microsoft Practice within IBM Consulting. Leveraging the strengths of both companies, the collaboration aims to develop innovative offerings and industry-specific solutions across various verticals such as retail, consumer packaged goods, government, financial services and supply chain. Complementing IBM Copilot Runway and IBM Consulting Azure OpenAI Services, it intends to deliver customized solutions to help businesses unlock new growth opportunities, navigate complex AI, facilitate seamless cloud transition and accelerate digital transformation   

IBM acquired Hakkoda Inc., a prominent data consultancy provider, for an undisclosed amount in the quarter. The acquisition is expected to strengthen IBM’s data expertise and augment its capability to support clients’ AI transformation initiatives. These are likely to have translated into incremental revenues in the Software segment.

The Zacks Consensus Estimate for revenues from the Software segment is pegged at $7.48 billion, while our model projects revenues of $7.52 billion.

However, despite solid hybrid cloud and AI traction, IBM faces stiff competition from Amazon Web Services and Microsoft’s Azure. The company’s ongoing, heavily time-consuming business model transition to the cloud is a challenging task. Weakness in its traditional business and foreign exchange volatility remain significant concerns. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes.

Price Performance

Over the past year, IBM has gained 53.9% compared with the industry’s rise of 20.2%. It has outperformed peers like Microsoft but trailed Oracle Corporation ORCL over this period. While Oracle has gained 79.6%, Microsoft soared 17.1%.  

One-Year IBM Stock Price Performance

Key Valuation Metric

From a valuation standpoint, IBM appears to be trading at a premium relative to the industry and is trading well above its mean. Going by the price/earnings ratio, the company shares currently trade at 24.88 forward earnings, higher than 21.95 for the industry and the stock’s mean of 13.75. 

Investment Considerations

IBM aims to benefit from the increasing propensity of business enterprises to undertake a cloud-agnostic and interoperable approach to secure multi-cloud management with a diligent focus on hybrid cloud and generative AI solutions. With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment and quantum computing, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which have led to a healthy demand trend.

However, IBM’s frequent acquisitions have escalated integration risks. Buyouts have negatively impacted the company’s balance sheet in the form of high levels of goodwill and net intangible assets. IBM’s margins might have been strained by limited cost-cutting opportunities and stiff competitive pressures, likely delaying key product launches.

End Note

IBM is trading at a premium valuation, and investors could wait for a better entry point to cash in on its long-term fundamentals. With stagnating earnings estimates, the stock is witnessing a period of lull. Consequently, it might be prudent to avoid the stock at the moment.

However, IBM expects its growth to be driven primarily by analytics, cloud computing and security services. A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities, will likely be conducive to long-term growth. IBM is poised to benefit from strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments in the long run.

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This article originally published on Zacks Investment Research (zacks.com).

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