IBM CEO Arvind Krishna at a Diwali celebration in the Oval Office of the White House, Washington, Oct. 21, 2025.
Allison Robbert | Bloomberg | Getty Images
International Business Machines (IBM) saw its shares dip 6% in after-hours trading following the release of its first-quarter financial results. While the technology giant surpassed Wall Street expectations on both earnings per share and revenue, its decision to maintain its full-year guidance appears to have tempered investor enthusiasm. This muted reaction highlights a market increasingly focused on forward-looking commitments and the sustained impact of emerging technologies.
For the first quarter, IBM reported adjusted earnings per share of $1.91, edging past the LSEG consensus estimate of $1.81. Revenue reached $15.92 billion, exceeding the expected $15.62 billion. This marks a robust 9% year-over-year increase in revenue, demonstrating continued momentum across IBM’s diversified business segments.
Net income for the quarter stood at $1.22 billion, or $1.28 per share, a notable improvement from $1.06 billion, or $1.12 per share, in the fourth quarter of 2024. These adjusted earnings figures exclude acquisition-related adjustments, providing a clearer view of operational performance.
Despite the strong quarterly performance, IBM management reiterated its full-year 2026 outlook, which includes revenue growth of over 5% at constant currency and a $1 billion increase in free cash flow. This cautious approach to guidance, particularly in a dynamic market, suggests a strategic focus on sustainable growth rather than aggressive upward revisions. IBM’s finance chief, Jim Kavanaugh, emphasized the company’s commitment to being a “prudent operator,” a phrase that underscores a desire for measured execution amidst evolving economic landscapes.
Interestingly, IBM noted that recent geopolitical events, specifically regional conflicts in the Middle East, did not negatively impact its first-quarter results. CEO Arvind Krishna highlighted that IBM experienced its strongest revenue growth in decades in the Middle East during the quarter. He attributed this resilience to the company’s broad diversification across its businesses, geographies, industries, and its substantial base of large enterprise clients, positioning it well to navigate global uncertainties.
Digging deeper into segment performance, IBM’s software division delivered impressive results, with revenue growing 11% year-over-year to $7.05 billion, surpassing the $7.02 billion consensus. However, the growth rate for Red Hat Enterprise Linux (RHEL), a key component of IBM’s software portfolio following its $34 billion acquisition of Red Hat in 2019, showed a deceleration compared to the previous quarter. Kavanaugh attributed this slowdown to a confluence of factors, including delays in federal government contract signings and closures, as well as persistent disruptions in the hardware supply chain. He further explained that RHEL’s performance is intrinsically linked to enterprise hardware deployments, underscoring the intricate interdependencies within the tech ecosystem.
The consulting segment generated $5.27 billion in revenue, a 4% increase, falling slightly short of the $5.28 billion consensus. Meanwhile, the infrastructure division posted a significant 15% revenue jump to $3.33 billion, exceeding the $3.16 billion consensus. This surge was largely driven by a remarkable 51% increase in Z mainframe hardware revenue, with the latest z17 mainframe model continuing to outperform previous cycles. This performance is particularly noteworthy given the ongoing debate about the relevance of mainframes in an AI-centric world.
The recent market narrative around IBM has been significantly influenced by the rapid advancements in artificial intelligence. In February, the stock experienced a sharp 13% decline after AI model builder Anthropic suggested that AI could facilitate the modernization of COBOL code, a programming language prevalent in many mainframe applications. While this sparked concerns about the future of IBM’s core mainframe business, the company maintains a strong counter-argument. Rob Thomas, IBM’s senior vice president of software, articulated this stance in a recent LinkedIn post, asserting that “AI strengthens the mainframe case, it does not weaken it.” This perspective suggests that AI’s capabilities can enhance the efficiency and applicability of mainframe systems, rather than rendering them obsolete.
Adding to its strategic growth initiatives, IBM completed the substantial $11 billion acquisition of data streaming software company Confluent in mid-March. This move is expected to bolster IBM’s hybrid cloud and AI offerings. Kavanaugh indicated that this acquisition, which closed approximately two months ahead of schedule, is projected to expand the company’s operating pre-tax margin by about 1%, demonstrating efficient integration and immediate strategic benefits.
IBM’s stock performance year-to-date has lagged the broader market, with shares declining approximately 15% as of Wednesday’s close, contrasting with the S&P 500’s 4% gain. The company’s ability to articulate a clear and compelling strategy that leverages AI’s transformative power while continuing to derive value from its established enterprise solutions will be critical in regaining investor confidence and driving future growth.
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