IBM's stock dropped over 6% in extended trading following its first-quarter earnings report, which disappointed investors despite overall revenue exceeding expectations. The company reported $15.92 billion in Q1 revenue, surpassing the average analyst estimate of $15.62 billion, a 9% increase year-over-year. However, this growth was slower than the 12.2% seen in the previous quarter, leading to concerns among investors.
Key areas of concern included the software segment, which posted 11.3% growth to $7.1 billion ($7.05 billion by another report) and was only slightly above analyst consensus of $7 billion ($7.02 billion by another report). The consulting business also generated $5.3 billion (or $5.27 billion), up 4% year-over-year, which was in line with analyst expectations. Analysts like Matthew Swanson of RBC Capital Markets noted investor skepticism around IBM's ability to boost growth in consulting and the performance of its Red Hat division within software, especially given fears of AI competition.
Conversely, the infrastructure segment showed strong performance, with revenue growing 15.2% to $3.33 billion (or $3.3 billion), beating estimates of $3.1 billion, largely due to demand for its latest mainframe systems. Despite these mixed results, IBM reiterated its 2026 guidance for over 5% revenue growth in constant currency and a $1 billion increase in free cash flow, which disappointed some analysts who had hoped for an upward revision. CEO Arvind Krishna, however, stated that AI continues to be a positive factor for the company's global business.
Analyst Brent Thill of Jefferies had anticipated upside following IBM's acquisition of Confluent, a data-streaming platform, which was completed in mid-March for $11 billion. This acquisition, along with expected growth from Red Hat, was seen as potentially creating room for upward estimate revisions. Investor worries about the impact of artificial intelligence on traditional software and consulting, as well as an earlier 13% stock drop in February following AI startup Anthropic's announcement regarding COBOL modernization, have contributed to IBM's stock falling about 15% year-to-date.
