This Century-Old Tech Giant Reports Tuesday With AI Momentum Building

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International Business Machines (NYSE: IBM) is trading near its 52-week low, and Q2 lands Tuesday. Last quarter, Software grew 11.3%. That is the number that matters.

At $219.05 with a market cap around $216 billion, this is one of the more interesting setups in large-cap tech this month. The stock is sitting near the bottom of a $204.44 to $332.46 range. 

One thing to flag before we get into it: IBM pre-announced an earnings miss on July 14, driven by Infrastructure weakness. That changes the risk profile. Full details and management commentary hit Tuesday, but you are walking in already knowing the headline number is impaired.

Action: If this name is on your radar, wait for Tuesday's call before sizing in. How management frames the Infrastructure miss and the back half matters more than the entry price right now.

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Operational Overview and Recent Earnings

IBM runs four segments: Software (Red Hat, watsonx, automation, security), Consulting (advisory), Infrastructure (mainframes and storage), and Financing. Software is the growth engine at roughly 45% of revenue and carries the highest gross margins. Red Hat's hybrid cloud stack is the crown jewel, with watsonx bolted on top as the AI monetization layer.

Last quarter pointed in two directions at once. Software revenue climbed 11.3% year-over-year, which is the line that carries the long-term thesis. Infrastructure revenue, on the other hand, dropped roughly 7% year-over-year and was the primary driver of the pre-announced miss IBM disclosed July 14. That is not a rounding error. It is a real stumble on the mainframe refresh cycle, and it is what the market is now pricing in.

Action: Watch Software growth, watsonx bookings, and what management says about Infrastructure on Tuesday's call. The question is not whether Q2 missed; it did. The question is whether the damage is contained.

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WatsonX and Red Hat Are the Real Long-Term Catalysts

IBM's generative AI book of business has crossed $6 billion in cumulative bookings, with roughly a fifth coming from software (the higher-margin piece). Consulting still dominates the mix, but the software share climbs every quarter. That is the line the sell side keeps undermodeling.

Red Hat consumption revenue has been running double-digit growth, and OpenShift adoption is the tell. Every hybrid cloud deployment that hits production becomes a recurring revenue annuity. It is also why Software gross margins keep expanding, which pulls the whole company's margin profile higher.

Enterprise IT is boring, and that is the point. IBM sells to Fortune 500 CIOs who don't switch vendors on a whim. Multi-year contracts, sticky renewals, deep integration. When AI budgets finally hit the enterprise procurement cycle, IBM is standing right in front of the door.

The dividend helps too. IBM pays $6.73 annually, a trailing yield around 3.1% at current prices. Not the reason to own it, but it puts a floor under the stock.

Action: Given the pre-announced miss, hold off on building a position until Tuesday's call gives a cleaner read on back-half guidance and whether the Infrastructure weakness is cyclical or structural. If the Software story stays intact and management credibly contains the damage, weakness below $210 becomes more interesting.

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Bear Case

Infrastructure revenue fell roughly 7% last quarter and was the headline reason IBM pre-announced. Until there's clarity on whether that is a one-quarter air pocket or a longer disruption to the z17 refresh cycle, the stock carries more uncertainty than it did a week ago.

Consulting revenue has been flat to down, and it is about a third of the business. Until that line inflects, the multiple stays capped.

Shares trade around 19x trailing earnings, which is not cheap for a business that just missed. If Software stalls or Infrastructure disappoints again next quarter, the multiple compresses fast.

Microsoft, Google, and the hyperscalers all want the enterprise AI dollar. IBM's edge is regulated industries and hybrid deployments, but the moat is not infinite.

Enterprise clients are sensitive to capex tightening. A recession scare could delay contract signings and pressure the bookings trajectory.

Consulting weakness could get worse if clients keep pushing advisory spend into 2027, eating into total revenue even if Software crushes it.

Action: Don't chase this into the print. Let Tuesday's call do the work of separating the Software thesis from the Infrastructure mess. Hedge with diversified large-cap tech ETFs if you want exposure to the space without the single-name risk right now.