IBM Delivers Earnings Beat but Consulting Stagnation Triggers Sharp Selloff

Investors who looked past the headline numbers at IBM’s first-quarter results found a story of two very different businesses. The software division surged, mainframe revenue exploded, and earnings per share comfortably cleared analyst estimates. Yet the stock tumbled more than 9% in the aftermath, as the market zeroed in on a persistent weak spot: consulting.

For the three months ended March 31, IBM reported adjusted earnings of $1.91 per share, beating the consensus forecast of $1.82 by roughly 5.5%. Revenue came in at $15.92 billion, up 9.5% year-over-year and slightly ahead of expectations. Adjusted EBITDA surpassed estimates by 13%. On the surface, it was a clean beat.

Software revenue climbed 11% to $7.05 billion, while infrastructure — powered by a 51% surge in Z-mainframe sales — delivered a strong contribution. Management reaffirmed its full-year outlook for constant-currency revenue growth above 5% and an additional $1 billion in free cash flow compared with 2025.

But the consulting business, which IBM is counting on to help transform its customer base into a higher-margin software operation, grew just 1% on a currency-adjusted basis. That figure landed well below the double-digit expansion needed to justify the premium valuation investors have assigned to the stock.

“That’s the price of wanting to be valued as a software company — investors don’t like results that merely meet consensus,” said Melius Research analyst Ben Reitzes, capturing the market’s disappointment. The contrast is stark: software carries gross margins of 82%, while consulting margins hover around 28%. As long as the consulting unit stagnates, the overall margin profile remains capped.

The selloff spilled over to rivals. Shares of Accenture also retreated as the market reassessed the risk of a broader slowdown in IT consulting. At roughly 19 times forward earnings, IBM trades well above its five-year average of 14 times — a premium that looked justified when both software and consulting were growing at double-digit rates. With software at 11% and consulting at 1%, that foundation has cracked.

Should investors sell immediately? Or is it worth buying IBM?

Chief Financial Officer Jim Kavanaugh struck a cautious tone on the analyst call, describing IBM as a “prudent operator” and noting that raising guidance in the first quarter would be historically unusual. The company also flagged headwinds from the pending acquisition of Confluent, which is expected to create dilution. Wedbush maintained its outperform rating but trimmed its price target from $340 to $320, citing those factors along with temporary weakness in consulting.

The stock closed at €193.88 in Frankfurt, roughly 29% below its 52-week high of €271.80 and more than 22% lower than where it started the year. It now sits well below its 200-day moving average.

IBM announced two strategic partnerships alongside its earnings. A collaboration with Google Cloud aims to accelerate enterprise AI adoption and modernize hybrid cloud infrastructure, combining Google’s developer-friendly approach with IBM’s hybrid cloud and data management expertise. Separately, IBM is integrating its agentic AI platform watsonx Orchestrate into Adobe’s customer experience automation tools, helping companies detect and respond to customer intent more quickly.

For income-focused investors, the dividend calendar offers a concrete date. The ex-dividend date is May 8, with a payout of $1.69 per share scheduled for June 10. It marks the 31st consecutive year that IBM has increased its quarterly dividend.

Whether that is enough to draw buyers back remains an open question. The stock is trading just above its 52-week low, and the path to recovery runs through consulting. Until that business shows signs of a rebound, the software valuation will be hard to defend.