IBM Shares Drop 5-6% Despite Strong Q2 Earnings, AI Growth

IBM reported strong Q2 2025 earnings with non-GAAP EPS of $2.80, surpassing analyst expectations, and revenue of $16.98 billion, reflecting a 7.7% year-over-year increase. Despite these positive results and a surge in AI-related revenue to over $7.5 billion, IBM's shares declined between 5% to 6% in after-hours trading, partly due to software sales falling short of projections and cautious future revenue guidance for Q3 2025, which was 2.3% below estimates. The company highlighted growth in its consulting and infrastructure segments and emphasized its leadership in AI innovation, including the upcoming release of Power11 servers designed to enhance AI workloads. Analyst sentiment remains generally positive, with most recommending a buy or outperform rating, though average price targets suggest a modest downside risk from current prices, reflecting market uncertainties and challenges in sustaining growth. IBM's operating margin dropped to 12.9% from 15.3% the previous year, highlighting some pressure on profitability despite solid cash flow margins. Overall, IBM's recent results underscore its strong performance in AI and hybrid cloud, but investors remain cautious about near-term growth prospects amid competitive and market dynamics.