On Wednesday, July 23, IBM reports for the second quarter of this year. Despite the growing investor interest in the company, analysts emphasize the complexity of the situation - the rapid growth of its shares has already put high positive expectations into quotations, which may limit further prospects. 

As of mid-July 2025, IBM stock is showing impressive momentum, up about 30% YTD, while the S&P 500 Index is up only 7%. This significant outperformance sets a high bar for expectations;

What's in store for Wall Street

According to FactSet, the consensus forecast for the second quarter calls for IBM revenue of approximately $16.6 billion and adjusted EPS of $2.65.

The consensus target on IBM shares, according to LSEG data as of July 13, is $269.7 - it is 4% below the current price. Most Wall Street ratings - 11 out of 23 - suggest a "hold" recommendation.

What are the analysts saying?

- Analysts at Bank of America believe the key driver of optimism is IBM's software business, particularly the Linux software company Red Hat, which was acquired in 2019. According to investment bank analysts, the slowdown in enterprise software market growth from 9 percent in the first quarter to an expected 6 percent in the second quarter at constant exchange rates reflects only temporary fluctuations, and the focus is on IBM's ability to strengthen Red Hat's position by competing with cloud infrastructure management software developer VMware. Red Hat is expected to show higher growth rates than transaction processing and will be "an important component of the optimistic outlook" for the company for the rest of the year.

In IBM's consulting division, Bank of America analysts also forecast subdued results: a decline in orders combined with moderate growth at competitors reflects the general state of the market. At the same time, the bank's analysts note that artificial intelligence remains an additional growth driver for IBM's consulting and software business, and expect that by the end of the year there will be more evidence of increased corporate investment in AI solutions.

- According to Morgan Stanley, investors will be watching three indicators closely. The main factor is the growth rate of software revenue and the full-year outlook, with a particular focus on the Red Hat and Transaction Processing divisions. It is software that provides the company with high margins and revenue stability, and any deviations from the market's projected 8.8% growth rate could significantly adjust analysts' price target forecasts.

The company's free cash flow forecast for 2025 is also a key detail of the statement  and is expected to be $13.5 billion, and any deviations from that mark would instantly adjust analysts' expectations, Morgan Stanley analysts said.

Investment Bank notes that aggregate orders for artificial intelligence-based products and their distribution between the consulting and software divisions may be an indicator of how well IBM is monetizing the current hype around its WatsonX enterprise AI creation and management software.

According to Morgan Stanley, IBM is expected to report revenue of about $16.5 billion and adjusted earnings per share of $2.68, nearly matching the market consensus forecast. Despite the high valuation of IBM stock, Morgan Stanley analysts do not expect the next quarterly report to change the stock's trajectory.

- Analysts at Evercore ISI in a recent note warned of possible difficulties for the consulting business in the second half of the year due to U.S. federal budget cuts, but emphasized that IBM's share of revenue from government contracts is only about 5%, limiting its impact on the overall business.

- At the same time, the Jefferies team remains optimistic about the software segment: they argue that Wall Street's projections of 10 percent year-over-year revenue growth for IBM indicate solid momentum, and that software modernization and the move to hybrid cloud will further strengthen Red Hat's position.

This article was AI-translated and verified by a human editor

Share