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IBM (NYSE:IBM) just threw a curveball into the market narrative. After years of sidestepping quarterly forecasts, Big Blue decided its time to talk numbers. The company issued rare Q2 revenue guidance between $16.4 billion and $16.75 billiontopping Wall Street estimatesand doubled down on its 2025 target of at least 5% revenue growth. First-quarter earnings came in hot: $1.60 per share on $14.5 billion revenue, beating expectations. The kicker? Its not just legacy hardware or consulting. IBMs high-margin software unit did the heavy lifting this time, backed by the companys growing AI bets.
But not everything was smooth sailing. IBM disclosed that 15 U.S. government contractsworth around $100 millionwere abruptly canceled under a federal cost-cutting push. That news sent the stock down 6.8% at 6.52am in the premarket trading today. While the financial hit is small (less than 1% of consulting backlog), the psychological blow landed hard. Investors, already jittery about macro volatility and shifting U.S. policies, were quick to react. Unlike peers more exposed to federal spending, IBM has the advantage of diversificationespecially into enterprise software and AI, which have been its safety net in stormy times.
Heres where it gets interesting: IBMs AI Book of Business jumped by another $1 billion this quarter, pushing the total above $6 billion. Its a strong signal that the companys pivot to AI isnt just PRits translating into deals. For a company that once posted 20 straight quarters of revenue declines, this is a full-blown turnaround. IBMs evolution from old-school IT to modern-day AI powerhouse is starting to look realand increasingly investable.
This article first appeared on GuruFocus.