IBM Corp. reported revenue and earnings that topped analysts’ expectations, but its stock price dropped more than 7% in early after-hours trading as the firm declined to raise full-year estimates.

Revenue rose 6%, to $15.9 billion, at constant currency, ahead of analysts’ estimates of $15.62 billion. Earnings per share grew 19%, to $1.91, beating analyst estimates of $1.81. Gross profits of $9.2 billion rose 12%, and gross profit margin inched up 1.1 points, to 57.7%.

Chief Financial Officer James Kavanaugh said first-quarter revenue growth was the strongest in a decade. “This is an extremely strong start to the year,” he said.

Even so, executives declined to raise full-year forecasts, choosing instead to restate earlier estimates of more than 5% constant currency revenue growth and an increase of about $1 billion in year-over-year free cash flow in 2026.

That appears to have disappointed investors, despite the fact that IBM makes it a practice not to raise estimates following the first quarter. Shares fell more than 6% in after-hours trading.

“A lot of companies are facing high expectations going into earnings right now, and if everything doesn’t go perfectly, they suffer,” said Nucleus Research Inc. analyst Duncan Van Kouteren.

Everything in IBM’s business appeared to go just about perfectly this quarter, though. Software revenue grew 8% on a constant-currency basis, while Infrastructure revenue grew 12%, helped by a 48% jump in sales of a new mainframe product line.

Software sales have been a key focus of the company since Chief Executive Arvind Krishna took over five years ago. “We’re more optimistic than we were a quarter ago on software,” Kavanaugh said.

IBM doesn’t break out revenue from artificial intelligence, but executives said demand is strong and growing. “AI is reshaping our clients’ operating environments,” Kavanaugh said. “IBM’s focus on trust, security and governance positions us to deliver value to our clients.”

Van Kouteren said the 16% jump in revenue from data products indicates that IBM’s AI story is resonating with customers. “That seems like AI pull-through showing up in the results,” the analyst said. “Enterprises need data, fabric and runtime and IBM sells all three.”

Growth in infrastructure revenue is also encouraging, he said. The nearly 50% jump in Z mainframe sales “points to the fact that the narrative that everything is going to the hyperscalers isn’t happening,” he said. “Regulated enterprises are spending aggressively on governed on-premises AI infrastructure, and that plays to IBM’s strength.

Hybrid cloud sales, which are primarily Red Hat products, grew 10%. Kavanaugh said Red Hat OpenShift is on a $2 billion annual run rate and growing. Automation was up 7%, data up 16% and transaction processing up 2%.

The one soft spot was consulting revenue of $5.3 billion, which was roughly flat with the previous year. “That suggests enterprises are deploying what they’ve signed up for, but maybe not ramping up net new engagements,” Van Kouteren said. “It bears watching.”

Krishna said the current conflict in the Middle East hasn’t impacted business. “We had the strongest growth we have seen in decades in the Middle East,” he said. “We expect that to continue in the second quarter.”

IBM ended the first quarter with $11.8 billion of cash, restricted cash and marketable securities, down $2.6 billion from year-end 2025. Debt is up $5.1 billion year to date.

Free cash flow, which Kavanaugh said is increasingly the metric Wall Street uses to value companies, grew $300 million, to $2.2 billion.

Photo: IBM