Image Source: TradingView
By Brian Nelson, CFA
IBM (IBM) recently reported second quarter results that came in better than expected on both the top and bottom lines. Revenue of $17 billion was up 8% and up 5% at constant currency. Software revenue advanced 10%, up 8% at constant currency, while consulting revenue was up 3%, flat at constant currency. Infrastructure revenue was up 14%, up 11% at constant currency. Non-GAAP gross margin was up 230 basis points, while non-GAAP pre-tax income margin jumped 110 basis points.
Management had the following to say about the results:
We once again exceeded expectations for revenue, profit and free cash flow in the quarter. IBM remains highly differentiated in the market because of our deep innovation and domain expertise, both crucial in helping clients deploy and scale AI. Our generative AI book of business continues to accelerate and now stands at more than $7.5 billion. With our strong first-half performance, we are raising our full-year outlook for free cash flow, which we expect to exceed $13.5 billion.
The innovation we are bringing to market across the portfolio continues to resonate with clients as they scale their AI adoption and investments. As a result, revenue growth, portfolio mix and ongoing productivity initiatives drove significant margin expansion and double-digit profit growth. This combination delivered solid free cash flow, fueling our ability to invest in the business and return value to shareholders through dividends.
Year-to-date, IBM’s net cash from operating activities was $6.1 billion, with free cash flow coming in at $4.8 billion. IBM ended the second quarter with $15.5 billion of cash and marketable securities against debt, including IBM Financing debt of $11.7 billion, of $64.2 billion, up $9.2 billion year to date. Looking to full year 2025 expectations, IBM continues to expect constant currency revenue growth of at least 5%, and the firm now expects to generate more than $13.5 billion in free cash flow for the full year. We like IBM’s focus on free cash flow, but we don’t include shares in any newsletter portfolio.
—–
Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.