Great expectations: IBM’s AI mainframe refresh drives $17B revenue beat

IBM exceeded Wall Street expectations for second-quarter revenue and profit, driven by strong demand for its AI-enhanced mainframe systems and a recovery in its consulting business. The results reflect growing enterprise investment in AI infrastructure as businesses prioritize technology spending amid ongoing economic uncertainty.

Key financial highlights: IBM reported revenue of $16.98 billion for the June quarter, up nearly 8% year-over-year and beating analyst estimates of $16.59 billion.

• The infrastructure segment, which includes mainframes, generated $4.14 billion in revenue, significantly exceeding estimates of $3.81 billion.
• Second-quarter adjusted earnings of $2.80 per share also surpassed expectations.
• IBM’s “AI book of business” grew to $7.5 billion, up $1.5 billion from the previous quarter.

Mainframe revival: Sales of IBM’s latest AI-powered mainframe systems launched in June, ending a three-year product cycle and boosting quarterly performance.

• The new mainframes feature chips specialized for AI applications, making them capable of processing vast amounts of data required for modern AI workloads.
• This represents the first major refresh of IBM’s mainframe technology in three years, driving significant customer upgrades.

Consulting turnaround: IBM’s consulting division returned to growth with a 3% increase to $5.31 billion, breaking a five-quarter streak of revenue declines.

• Businesses are increasingly seeking IBM’s expertise for AI integration and navigating complex economic conditions.
• The consulting recovery signals renewed corporate confidence in technology investments.

What they’re saying: “All of us are still operating in a very dynamic macroeconomic environment,” finance chief Jim Kavanaugh told Reuters.

• Regarding the decision not to provide third-quarter guidance, Kavanaugh explained: “That quarterly guidance was really driven by the unprecedented volatility of the foreign exchange markets and what we were dealing with 90 days ago.”
• “What is different over the past 90 days — the FX world is kind of stabilized … so we reverted back to our standard practice.”

Market reaction: IBM shares fell 4% in extended trading despite the strong results, following a nearly 30% rise earlier this year as investors had already priced in much of the AI-driven growth expectations.