International Business Machines Corporation (NYSE: $IBM), known as IBM, is a tech and consulting firm, mainly known for its software solutions, consulting services, and hardware solutions, with a focus on data analytics and AI. On Wednesday, April 23, 2025, after markets closed, IBM released its Q1 results to a negative market reaction. Here is a deep dive into those results.
IBM Q1 Results
For the first quarter of fiscal 2025, IBM reported a 1% YoY increase in revenue to $14.5 billion, above estimates of $14.39 billion. It reported an adjusted EPS of $1.60, above the analysts’ estimate of $1.42.
Segment Performance
Software revenue grew 7% YoY to $6.3 billion, while consulting revenue was down 2% YoY to $5.1 billion. Meanwhile, Infrastructure revenue was down 6% YoY to $2.9 billion. The company also reported a 1% YoY decline in Financing revenue to $0.2 billion.
Other Q1 Highlights
IBM reported a non-GAAP gross profit margin of 56.5%, a 190-basis-point increase YoY, while the non-GAAP operating margin rose 50 basis points YoY to 12%. The company ended Q1 with free cash flow of $2 billion and $4.4 billion in net cash from operating activities.
IBM Guidance
IBM reiterated its previous full-year guidance. It expects full-year revenue to grow by at least 5% YoY, and full-year free cash flow of around $13.5 billion. The tech giant expects Q1 revenue to be $16.4 billion to $16.75 billion.
DOGE Hit
During the earnings call, IBM revealed that 15 of its government contracts were shelved because of actions by the Department of Government Efficiency (DOGE). The company revealed that those contracts were worth less than 1% of its order backlog in its consulting unit.
Market Performance
Following the revelation that IBM had lost some government contracts, the stock took a dive during premarket trading, dipping 6.84% to $228.70 as of 9:06 AM EDT on April 24, 2025. Year to date, the stock is up 11.67%, while over the past six months, it has risen 5.47%. Over the past year, IBM is up 34.74%.
The stock closed trading on Wednesday below its 50-day moving average of $248.11, and above its 200-day moving average of $222.86.
Analysts are optimistic about the future of IBM stock, giving it a moderate buy rating. They forecast an average price of $264.08, which is a 16.08% upside based on the last closing price. The analysts give a wide range of forecasts, with a high of $320 and a low of $160.
Is IBM A Buy Amid Fears Over Its Government Contracts?
IBM is currently undergoing a strategic transformation from a conventional computer firm to one that operates in the high-growth software and services sectors. It has used strategic acquisitions to grow its product portfolio.
During the earnings call, IBM CFO Jim Cavanaugh pointed out that the US Federal government accounted for less than 5% of its total revenue. He also pointed out that around 60% of that was consulting, and the rest was technology. The CFO pointed out that in its Consulting segment, US Federal government revenue accounted for less than 10% of its total revenue.
Based on these figures and the better-than-forecast Q1 results, adding IBM to your portfolio could potentially pay off in the long term.
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