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IBM shares drop on slowing software revenue growth

IBM reported second-quarter earnings, but software revenue growth fell short of expectations.

July 24, 2025 at 02:25 PM

IBM Stock Slips on Slowing Software Sales Growth, But Analysts Stay Bullish

IBM shares dropped due to slower-than-expected software revenue growth despite overall strong earnings.

IBM shares decline as software growth moderates

IBM shares fell 8% after the company reported second-quarter earnings that showed software revenue growth slightly below expectations. The tech giant achieved revenue of $16.98 billion and adjusted earnings per share of $2.80, both surpassing forecasts. However, software revenue came in at $7.39 billion, missing analyst predictions of $7.43 billion. CEO Arvind Krishna highlighted client caution influenced by geopolitical tensions and limited US federal spending. Despite this, analysts from Bank of America and Wedbush expressed their bullish outlook, while UBS pointed to slowing growth as a concern.

Key Takeaways

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IBM shares fell 8% after reporting mixed second-quarter results.

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Overall company revenue exceeded expectations, reaching $16.98 billion.

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Software revenue growth slowed to 5%, down from previous quarters.

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CEO Arvind Krishna noted cautious spending from clients due to geopolitical factors.

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Analysts express mixed reactions with some maintaining bullish ratings.

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Market reaction reflects concerns about the sustainability of software sales.

"Geopolitical tensions are prompting a few clients to move cautiously."

This comment from CEO Arvind Krishna explains the cautious spending behavior of clients.

"We believe IBM is well-positioned to capitalize on the current demand shift for hybrid and AI applications."

Wedbush analysts share a positive outlook on IBM's potential despite current challenges.

"The lackluster growth of IBM's software segment has turned into a show me story."

Bank of America analysts emphasize the need for IBM to prove its software growth can rebound.

"Organic software revenue growth slowed to 5%, a weak point for IBM."

UBS analysts identify slowing growth as a significant risk for IBM's stock.

The situation for IBM reveals a significant tension between positive earnings and investor concerns about the software segment's performance. The cautious sentiment from some clients indicates uncertainty in the market, which can raise questions about future growth and stability. Analysts' differing views underscore the challenge of maintaining investor confidence while adapting to evolving market demands, particularly in the burgeoning fields of AI and hybrid cloud services. As competition in these areas intensifies, IBM needs to demonstrate sustained growth to keep analysts and investors on its side.

Highlights

IBM's software sales growth raises questions for investors.
Caution among clients puts pressure on IBM's outlook.
Analysts torn as IBM navigates mixed earnings results.
Is IBM's software growth sustainable in a challenging market?

Concerns over IBM's software growth pose risks to investors

Analysts are concerned that slower software revenue growth could indicate broader challenges for IBM, especially given client caution driven by geopolitical factors. This has implications for investor confidence in IBM's future performance.

IBM's ability to navigate this complex landscape will be critical for its future success.

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ibm stock market technology software earnings business stocks technology

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