Technology group IBM (NYSE:IBM) reported first-quarter results that exceeded market expectations on Wednesday, with revenue rising 6% at constant currency.
Despite the solid performance, the company’s shares dropped more than 7% in premarket trading on Thursday, with analysts pointing to weaker-than-expected growth in the software division as a key concern.
Revenue tops forecasts as infrastructure leads
Demand for generative AI and hybrid cloud solutions—allowing businesses to run applications across both private data centers and public cloud environments—continues to expand as companies accelerate automation efforts.
IBM posted revenue of $15.92 billion for the quarter, above the consensus estimate of $15.61 billion.
The software segment recorded an 8% increase in revenue at constant currency, while infrastructure revenue rose 11%. Red Hat, a key part of IBM’s hybrid cloud strategy, grew 10% over the period.
Adjusted earnings per share came in at $1.91, beating analyst expectations of $1.81.
Analysts flag weaker software growth
Keith Bachman of BMO Capital Markets said IBM’s software performance “was light in the quarter despite better growth in Red Hat.”
“We continue to struggle to justify a premium Software multiple at the organic growth profile to get more constructive on IBM,” he added.
Outlook maintained despite mixed reaction
IBM reaffirmed its full-year guidance, expecting revenue growth of more than 5% at constant currency, with software revenue projected to grow around 10%.
At current exchange rates, currency movements are expected to provide a tailwind of roughly half a percentage point to one percentage point for the year, the company said.
“The first quarter was a strong start to the year with broad-based revenue growth across our segments. These results reflect the integrated value of our portfolio and the trust clients put in us to improve their operations. As clients scale use cases, AI continues to be a tailwind for our global business. IBM products and services are helping clients orchestrate, deploy and govern AI across hybrid environments,” said Arvind Krishna, chairman, president and chief executive officer.
“Given this strong start, we continue to expect more than 5 percent constant currency revenue growth and an increase of about $1 billion in year-over-year free cash flow in 2026,” Krishna added.
Dividend increase and analyst views
IBM’s board approved an increase in its quarterly dividend to $1.69 per share, payable on June 10, 2026, to shareholders of record as of May 8, 2026.
Analysts at Jefferies said upside in the quarter “was skewed towards mainframe/IBM Z while Software and Consulting were largely in line.”
“We remain constructive on the 10%+ Software growth outlook and see risk/reward as reasonable,” they added.