IBM's stock rally has slowed in recent weeks but the shares have been on a strong run, with Wall Street buying the tech stalwart as an AI winner. Those gains could be put to the test soon.
IBM is set to report its second quarter results after regular trading closes Wednesday. IBM's results will offer an early look at how the enterprise technology market is holding up against government spending cuts and tariff uncertainty.
IBM stock is ahead more than 28% overall this year. Shares of the more than century-old tech giant returned to record highs for the first time in a decade last September and have rallied further since then.
Here's what to watch from IBM's Q2 report:
IBM Q2 Earnings Preview: Numbers To Watch
IBM's earnings are seen increasing 9% to $2.65 per share on an adjusted basis, according to FactSet. IBM's adjusted earnings declined 5% to $1.60 in the company's March-ended quarter.
Analysts expect IBM to post sales of $16.59 billion for Q2, representing 5% year-over-year growth. That would mark an improvement from the roughly 1% sales growth that IBM has posted for three consecutive quarters.
IBM Stock: Software Segment In Focus
IBM stock fell following the company's first-quarter earnings report in April. The tech giant beat top and bottom-line expectations but its software sales growth slowed to 7%, compared to 10% growth in the fourth-quarter. Investors will be watching whether IBM's software business — which includes its Red Hat cloud-management software — slows further.
Analysts forecast roughly 10% growth for IBM's software segment in Q2, representing $7.43 billion in sales.
Jefferies analyst Brent Thill wrote to clients Monday that he is bullish on IBM's agility to sustain its software momentum.
"Leading indicators remain healthy, with Red Hat continuing to benefit from enterprise modernization and hybrid cloud adoption," Thill wrote.
He added that automation work from enterprises is boosting some of IBM's software segments, including the recently acquired HashiCorp.
Thill holds a neutral hold call on IBM stock, however. He noted that Microsoft and Oracle are growing at faster rates.
Tough Setup For IBM?
BofA Securities analyst Wamsi Mohan rates IBM stock a buy. But he said the stock faces a "tough near-term setup" given IBM's outperformance of the S&P 500 this year.
Mohan expects IBM's consulting segment to be "relatively muted" while its infrastructure revenue could get a boost from its new AI-focused z17 mainframes.
"AI should be a relative tailwind to both consulting and software and we expect to see further evidence of pickup in enterprise AI spending," Mohan wrote to clients on Monday.
Overall, analysts are projecting IBM's infrastructure revenue will grow 3% to $3.75 billion, according to FactSet. Consulting revenue is seen falling by less than 1%, to $5.17 billion.
IBM Stock: Nearing Test Of 5o-Day Line
Meanwhile, IBM stock was down 1% at 281.47 in recent action on the stock market today.
IBM shares broke out above a 266.45 consolidation pattern entry on May 15. Shares rallied further to reach an intraday record high of 296.16 on June 25.
A recent pullback has seen IBM stock fall about 5% so far in July. Shares fell below IBM stock's 21-day moving average earlier this month and are approaching a test of the 50-day line.
Meanwhile, IBM stock has an IBD Composite Rating of 84 out a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating.
