IBM Posts Strongest Revenue Growth in Decade on AI Mainframes

IBM has delivered its strongest quarter in more than a decade, proving that Big Blue’s pivot to AI‑infused hybrid cloud infrastructure is finally moving the revenue needle. For the three months to 30 June the company booked revenue of $17.0 billion, up 8 percent year‑on‑year (5 percent at constant currency) and comfortably ahead of the $16.6 billion Wall Street consensus. Adjusted earnings hit $2.80 per share, trouncing the $2.64 estimate, while GAAP EPS came in at $2.31. 

The beat was powered by a double‑engine recovery. IBM’s long‑sluggish consulting arm grew again—up 3 percent to $5.31 billion after five declining quarters—as clients snapped up AI road‑mapping projects built around Watsonx and Red Hat OpenShift. At the same time, a fresh mainframe refresh—Z Systems with AI‑accelerated Telum chips—sent Infrastructure revenue soaring 14 percent to $4.14 billion, well above the $3.8 billion most analysts expected. Software, led by Red Hat and data‑fabric products, added 10 percent to $7.39 billion. Management says total “AI‑related bookings and sales” now stand at $7.5 billion, a $1.5 billion jump in just three months. 

Investors applauded the top‑line strength but bristled at IBM’s escalating spend. Capital expenditure climbed to $2.8 billion as the company builds GPU clusters for Watsonx.ai and prepares to fold newly acquired HashiCorp into its hybrid‑cloud stack. Gross margin nonetheless widened 200 basis points to 58.8 percent, thanks to richer software mix and early mainframe pricing power. 

Shares initially slipped about four percent in after‑hours trading when IBM declined to provide a granular Q3 outlook—returning to its normal “full‑year view only” stance after offering a rare quarterly guide in April. But CFO James Kavanaugh reiterated the company’s target of mid‑single‑digit constant‑currency revenue growth and free cash flow of about $13 billion for 2025, and highlighted a £650‑million UK public‑sector AI contract as evidence that European demand is firming even amid weak macro readings. For UK investors, the read‑through is clear: IBM’s resurrection story now rests on two pillars—AI‑savvy consulting and mainframes that can run inferencing workloads natively. If those pillars hold, today’s cap‑ex surge looks like necessary fuel; if growth stumbles, the after‑hours wobble could become something harsher. For now, though, IBM just reminded the market that there’s more than one way to cash in on the AI boom—and Big Blue’s decades‑old mainframe franchise might be one of the most profitable.