IBM kicked off 2025 with a solid first-quarter performance that beat expectations, fueled by strong Software revenue growth, expanding margins, and robust free cash flow. The company posted revenue of $14.5 billion, up 1% year-over-year (or 2% at constant currency), reflecting resilient demand amid a complex macroeconomic environment.

Profitability improved meaningfully, with gross profit reaching $8.0 billion and gross margins expanding by 170 basis points to 55.2% on a GAAP basis (non-GAAP: 56.6%, up 190 basis points). Operating efficiency gains also pushed the pre-tax income margin to 12.0% on a non-GAAP basis, a 50-basis-point increase, translating to $1.5 billion in net income and diluted EPS of $1.60. Meanwhile, free cash flow rose to $2.0 billion, while net cash from operating activities climbed to $4.4 billion, up $0.2 billion year-over-year.

The standout performer was the Software segment, where revenue jumped 7% to $6.3 billion, or 9% in constant currency. This strength was broad-based, with Hybrid Cloud (Red Hat) up 12%, Automation up 14%, and Data up 5%, while Transaction Processing held steady. The segment delivered a segment profit of $1.85 billion, with margins rising sharply to 29.1%, up nearly 4 percentage points.

Consulting revenue softened slightly, down 2% to $5.1 billion, but operating leverage boosted margins to 11.0%, up from 8.2% a year ago. On the other hand, Infrastructure faced headwinds, with revenue declining 6% to $2.9 billion, primarily due to a 15% drop in IBM Z systems. Still, the company managed a segment profit of $248 million, with an 8.6% margin.

On the balance sheet, IBM ended the quarter with $17.6 billion in cash and marketable securities, up $2.8 billion since year-end. Total assets reached $145.7 billion, supported in part by the $7.1 billion acquisition of HashiCorp, which contributed to an increase in goodwill to $66.1 billion. Total debt rose to $63.3 billion, reflecting strategic financing moves.

CEO Arvind Krishna noted IBM’s performance exceeded expectations across revenue, margins, and free cash flow, pointing to strong momentum in generative AI, with the company’s AI book of business growing to over $6 billion, up more than $1 billion this quarter. CFO James Kavanaugh emphasized improved productivity and disciplined investment driving stronger margins and financial flexibility.

Looking ahead, IBM reaffirmed its full-year 2025 guidance, projecting at least 5% revenue growth at constant currency, with currency expected to be a 1–1.5 point tailwind. The company also reiterated free cash flow guidance of approximately $13.5 billion for the year. For Q2, revenue is expected between $16.40 billion and $16.75 billion.

Overall, IBM’s first quarter highlights its continued strategic pivot toward high-growth areas like hybrid cloud and AI, backed by disciplined financial management and a robust capital position.