Analyst(s): Nick Patience, Daniel Newman
Publication Date: April 25, 2025
IBM’s Q1 FY 2025 earnings report highlights strong software-led momentum and continued demand for enterprise AI solutions. While consulting showed limited movement, IBM reaffirmed its full-year outlook, reflecting confidence in its hybrid cloud, automation, and AI execution strategy.
What is Covered in this Article:
- IBM’s Q1 FY 2025 financial results
- Continued strength in recurring revenue and generative AI backlog growth
- Strategic momentum from HashiCorp integration and z17 mainframe launch
- Consulting resilience despite federal delays and discretionary spending caution
- Reaffirmation of full-year guidance amid macroeconomic uncertainty
The News: IBM (NYSE: IBM) reported its Q1 FY 2025 results, delivering revenue of $14.5 billion, exceeding consensus estimates by 1% and reflecting 1% year-on-year (YoY) growth, or 2% in constant currency (cc). On a cc basis, Software revenue rose 9% YoY to $6.3 billion, driven by Automation (+15% YoY), Hybrid Cloud (+13% YoY), and Data (+7% YoY), while Consulting revenue was flat YoY at $5.1 billion. Infrastructure revenue decreased 4% YoY at cc to $2.9 billion. Non-GAAP gross profit increased by 4% YoY to $8.2 billion, with an operating gross margin of 56.6%, up 190 basis points YoY. Non-GAAP net income stood at $1.5 billion (Q1 FY 2024: $ 1.6 billion), 15.2% above consensus. Non-GAAP diluted earnings per share (EPS) fell by 5% YoY to $1.60, 14.1% above street estimates.
“There continues to be strong demand for generative AI, and our book of business stands at more than $6 billion inception-to-date, up more than $1 billion in the quarter,” said Arvind Krishna, CEO, Chairman, and President of IBM. “We remain bullish on the long-term growth opportunities for technology and the global economy. While the macroeconomic environment is fluid, based on what we know today, we are maintaining our full-year expectations for revenue growth and free cash flow.”
IBM Posts Strong Q1 FY 2025 Results, Backed by Automation and Hybrid Cloud
Analyst Take: IBM began FY 2025 with a strong showing, outperforming on revenue and profitability, even as macro volatility prompted investor caution. Software strength, expanding AI engagements, and disciplined execution were key to offsetting muted consulting growth and product cycle impacts in infrastructure. Management reiterated its full-year guidance and pointed to a durable business model driven by hybrid cloud, automation, and enterprise AI priorities.
Software Momentum Highlights IBM’s Platform-Led Strategy
IBM’s Software unit continues to anchor growth, now accounting for 45% of total revenue, supported by $21.7 billion in ARR (+11% YoY) and ~80% recurring revenue. Segment margin expanded by over 370 bps YoY, reinforcing IBM’s broader profitability. Red Hat delivered its seventh straight quarter of high-teens bookings growth, with OpenShift ARR up ~25% to $1.5 billion. Integrating HashiCorp alongside Red Hat and Apptio strengthens IBM’s multi-cloud automation suite, aligning with rising enterprise demand for provisioning, containerization, and virtualization, especially in the wake of VMware-related shifts.
Approximately six points of Q1 FY 2025 growth in the segment were organic, driven by the adoption of AI agents, Watsonx, and hybrid AI middleware. IBM’s strategy of embedding AI into existing platforms caters to enterprises seeking integrated, scalable tools for productivity-led transformation.
As clients navigate tighter IT budgets, the Software portfolio is proving central to IBM’s value proposition – enabling cost-efficient operations, driving automation, and reinforcing its role as a deflation-resilient technology partner.
AI Momentum and Resilient Consulting Backlog
IBM’s generative AI book of business expanded by over $1 billion in the quarter, reaching $6 billion inception-to-date, with 80% tied to Consulting. This growth reflects continued traction in strategic areas such as AI-led application modernization and hybrid cloud transformation.
Consulting revenue remained flat YoY in constant currency, but IBM continues to see durable momentum in AI and automation-driven engagements. While DOGE-related federal contract delays created a temporary headwind, the impact was limited to roughly $100 million in backlog exposure, immaterial against the segment’s $30+ billion backlog. Management noted selective client caution around discretionary IT spending but highlighted the Consulting unit’s strategic role in advancing IBM’s broader AI agenda. Consulting remains a critical lever for scaling IBM’s AI strategy, with early-cycle momentum and cross-stack integration driving relevance amid evolving enterprise priorities.
Infrastructure Set for Rebound with z17 Ramp
Infrastructure revenue declined 4% YoY in cc, driven by a 14% drop in IBM Z and a 4% decrease in Distributed Infrastructure. The decline was in line with expectations as demand tapered following the conclusion of the z16 cycle. In April, IBM launched the new z17 mainframe, featuring multimodal AI acceleration, power efficiency improvements, and enhanced developer usability. While the launch occurred post-Q1, management highlighted on the earnings call that early client engagement has been constructive, pointing to growing needs for secure, scalable, and data-intensive processing capabilities.
The Storage subsegment remained a bright spot, delivering double-digit growth as enterprises continued to modernize and expand hybrid cloud environments. Executives expressed confidence that the Infrastructure segment is positioned for sequential improvement, with the z17 ramp expected to support a shift from Q1’s revenue headwind to a modest tailwind contribution over the full year. As z17 adoption progresses, it is expected to restore momentum in the segment and reinforce IBM’s value in high-performance, secure infrastructure solutions.
Outlook Intact Despite Volatile Macro
IBM maintained its full-year outlook, guiding for at least 5% cc revenue growth and approximately $13.5 billion in free cash flow. For Q2 FY 2025, revenue is expected to range between $16.4 – 16.75 billion, supported by a favorable software mix, initial contributions from the z17 launch, and incremental revenue from the HashiCorp integration.
IBM’s positioning in enterprise AI and software remains a core strength amid macro uncertainty. The company continues to benefit from its AI-first strategy, with software-led tailwinds and a growing $6 billion generative AI backlog offering resilience and visibility. With embedded automation, hybrid cloud tools, and deep domain expertise, IBM enables clients to scale efficiency-focused transformation projects – a clear advantage as IT spending becomes more value-driven.
While top-line acceleration may be measured, IBM’s consistent delivery, reaffirmed guidance, and strong operational controls – including stable margins and robust liquidity – reinforce its reputation as a dependable technology partner.
See the complete press release on IBM’s fiscal Q1 FY 2025 financial results on the IBM website.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Nick Patience is VP and Practice Lead for AI Platforms at The Futurum Group. Nick is a thought leader on AI development, deployment, and adoption - an area he has researched for 25 years. Before Futurum, Nick was a Managing Analyst with S&P Global Market Intelligence, responsible for 451 Research’s coverage of Data, AI, Analytics, Information Security, and Risk. Nick became part of S&P Global through its 2019 acquisition of 451 Research, a pioneering analyst firm that Nick co-founded in 1999. He is a sought-after speaker and advisor, known for his expertise in the drivers of AI adoption, industry use cases, and the infrastructure behind its development and deployment. Nick also spent three years as a product marketing lead at Recommind (now part of OpenText), a machine learning-driven eDiscovery software company. Nick is based in London.
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
