IBM Ahead of Q1 2025 Earnings: Key Considerations

Later today, following the Wall Street close, veteran US technology firm IBM is set to release its financial results for the first quarter of 2025. Investors will be keenly observing the "Big Blue's" report, particularly against a backdrop of persistent volatility in tech equities linked to international trade uncertainties.

Interestingly, IBM has bucked the broader tech sector trend, registering an approximate 11% gain year-to-date, while numerous peers have experienced notable declines since the start of the year. Ahead of its earnings release, IBM shares are trading up by 2% today.

What are the expectations for today's report?

• Earnings per Share (EPS): Forecasted in the range of $1.40-$1.43, representing an approximate 15% year-on-year decrease. However, it is important to note that the prior year's earnings included a one-off gain from the divestiture of the Weather Company.
• Revenue: Expected to be around $14.4 billion, similar to the previous year.
• Software Segment: Anticipated growth of 7.5% year-on-year.
• Consulting Segment: Expected to decline by 2.6% year-on-year.
• Technology Infrastructure Segment: Projected to decrease by 10.2% year-on-year.
• Revenue Breakdown: The software sector is anticipated to contribute 44% of revenue, followed by consulting at 35%, and infrastructure at 19%.

How has the company reacted to previous releases?

• In 60% of the earnings releases over the past five years, IBM's share price has reacted positively.
• The median positive return following earnings announcements stood at 4.8%.
• The maximum single-day gain after a financial report release reached as high as 13%.
• Historical data suggests IBM has typically performed resiliently during periods of market instability, as evidenced in 2000, 2008, and 2020.

The company has not recorded significant revenue growth recently. It is also worth noting that the first quarter typically exhibits weaker performance compared to subsequent quarters. Source: Bloomberg Finance LP, XTB

What to watch out for?

A key focus for the financial report will be whether IBM surpasses analyst expectations, particularly within its software segment, which is projected to be the primary growth driver. Investors will also pay close attention to management's commentary regarding its AI strategy and the potential impact of any tariffs on IBM's operations.

Given its stable footing, substantial revenue streams from software and consulting, and a strong presence among Fortune 500 corporate clients, IBM is viewed by some as a technology "safe haven" in the current volatile market environment, potentially fostering positive reactions to favourable results.

The company's shares have recently outperformed the Nasdaq 100 (US100) index futures. IBM's stock is trading approximately 7-8% below its recent local highs and remains above the level preceding the Q4 2024 earnings release, which significantly exceeded expectations. Source: xStation5