IBM Continues to Target $13.5 Billion in Free Cash Flow for 2025

Image: IBM’s shares have done quite well the past few years.

By Brian Nelson, CFA

IBM (IBM) recently reported first quarter results that beat the consensus estimate for both revenue and non-GAAP earnings per share. Revenue increased 2% at constant currency, with software revenue up 9% in constant currency and consulting revenue flat at constant currency. Infrastructure revenue was down 4% at constant currency. IBM’s profitability improved 190 basis points at the non-GAAP gross margin level, while it was up 50 basis points at the non-GAAP pre-tax margin level. In the quarter, IBM hauled in $4.4 billion in operating cash flow and $2 billion in free cash flow.

Management had the following to say about the quarter:

We exceeded expectations for revenue, profitability and free cash flow in the quarter, led by strength across our Software portfolio. There continues to be strong demand for generative AI and our book of business stands at more than $6 billion inception-to-date, up more than $1 billion in the quarter. We remain bullish on the long-term growth opportunities for technology and the global economy. While the macroeconomic environment is fluid, based on what we know today, we are maintaining our full-year expectations for revenue growth and free cash flow.

Revenue growth, once again led by Software, combined with our productivity initiatives, drove significant gross margin expansion and operating leverage in the quarter. With our focus on the fundamentals of our business, we continue to maintain a strong liquidity position and yield solid free cash flow. This enables us to both invest in our business and return value to shareholders through dividends.

During the first quarter, IBM returned $1.5 billion to shareholders in dividends while it invested $7.1 billion in acquisitions, including its purchase of HashiCorp. IBM ended the quarter with $17.6 billion in cash and marketable securities, while debt, including IBM Financing debt, totaled $63.3 billion. Looking to the full year 2025, IBM continues to expect constant currency revenue growth of at least 5%. Free cash flow is targeted at $13.5 billion for the full year. The high end of our fair value estimate range stands at $293 per share. Shares yield 2.6% at the time of this writing.

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