IBM Stock Falls on Strong Earnings. The Bar Was High.

IBM reported revenue of $17 billion for its latest quarter, ahead of analysts’ expectations for $16.6 billion. (ANGELA WEISS/AFP via Getty Images)

IBM reported better-than-expected earnings results for its latest quarter. Its shares were still falling in after-hours trading.

For the June quarter, IBM reported earnings per share of $2.80, compared with Wall Street’s consensus estimate of $2.65, according to FactSet. Revenue came in at $17 billion, which was ahead of analysts’ expectations for $16.6 billion.

“The innovation we are bringing to market across the portfolio continues to resonate with clients as they scale their AI adoption and investments,” IBM Chief Financial Officer James Kavanaugh said in the press release.

The stock’s rally this year set a high bar for results and IBM shares were down as much as 6% following the release.

Software revenue grew by 10% to $7.4 billion for the June quarter, while consulting revenue rose by 3% to $5.3 billion.

For the full year, IBM still forecasts at least 5% revenue growth in constant currency and now expects to generate more than $13.5 billion in free cash flow. In April, the company had said it expected to generate about $13.5 billion in free cash flow for 2025.

Last week, Stifel analyst David Grossman reaffirmed his Buy rating and raised his price target for IBM to $310 from $290, citing the strength of its software business.

IBM stock has risen “reflecting improving execution, FCF growth and the company’s defensive characteristics,” he wrote, referring to free cash flow. “We believe the risk/reward remains attractive.”

IBM stock closed at $282.01 on Wednesday, with a gain of 28% this year, compared with a 9% rise for the Nasdaq Composite .

Write to Tae Kim at tae.kim@barrons.com