IBM has seen strong sales for its new mainframe offering in Q2 of 2025, but software revenue failed to meet analyst expectations.

The tech giant revealed that the company overall has seen a revenue of $17 billion in its latest quarter, up 5% year over year (YoY) at constant currency, with infrastructure services generally performing well.

This is more than the company's previous projection of $16.4bn to $16.75bn.

This is also an increase on Q1 of 2025, which had a revenue of $14.5bn.

The company said that infrastructure revenue has increased 11% year over year - reaching $4.1bn for the quarter. Hybrid infrastructure increased 19%, and IBM Z - the company's mainframe offering - rose by as much as 67%.

Distributed infrastructure, meanwhile, sank 17%, and infrastructure support was down by 3% YoY.

The growth of IBM's mainframe business is somewhat expected, with the company having made its latest generation - the z17 - generally available in June 2025.

Speaking on its success, CFO James Kavanaugh told analysts that the company expects the z17 - which saw an update this month - to contribute around 1.5 points to IBM's revenue growth this year, describing it as the "strongest ever first-quarter start in the history of IBM around mainframe in a launch quarter."

He later added that they had shipped "over 100% MIPS capacity into the marketplace on z17" and that this had come with a cut on software spending as "clients reprioritized their spend to the hardware."

Kavanuagh reassured analysts, telling them that this will "impact near term, but look at what happened on z16. The same thing happened in the second quarter last year. And what happened? We accelerated that growth."

Software revenue was still up 8% YoY, but slightly below analyst estimates.

The quarter also saw IBM unveiling its new Power11 server portfolio.

Kavanaugh further spoke about the company's cost-saving efforts, describing IBM as "laser-focused" on increasing efficiency and saving money by "leveraging technology and embedding AI in our workflows, as well as optimizing our supply chain and service delivery."

He added: "This quarter, we continue to optimize our supply chain by shifting our distributed infrastructure manufacturing to an industry-standard strategic partner.

"This is the next evolution of our supply chain transformation, as we pivot to a simpler, more efficient process, which helps us optimize cash conversion cycles.

"Through the first half, we generated $4.8 billion of free cash flow, up about $300 million year over year, resulting in our highest first-half free cash flow margin in reported history."

Beyond revenue and cost optimization, IBM reported an adjusted EBITDA of $4.7bn for the quarter, up 16% YoY, and a gross operating profit margin of 60.1 percent.

Little was mentioned about quantum, beyond that IBM had deployed an IBM Quantum System Two in Japan in partnership with Raikin.

The company's generative AI book of business - which includes bookings and actual sales across various products - IBM said now stands at $7.5bn inception-to-date, up $1.5bn from the previous quarter.

IBM's previous earnings call was shadowed by macroeconomic uncertainty, with the company taking a hit on 15 federal contracts related to DOGE-related cutbacks.

CEO Arvind Krishna addressed this again in the Q2 earnings call with some optimism. He told investors: "While not a major factor overall, geopolitical tensions are prompting a few clients to move cautiously. US federal spending was also somewhat constrained in the first half, but we do not expect it to create long-term headwinds."

He later said that he had moved from "cautious optimism" in Q1, but now had moved "all the way to optimism around the macro environment," citing global growth and desire to invest in technology.

Krishna also praised the US government's "AI Action Plan" published on July 23, stating that it is "very clear that AI has to be used by the government."

"While these [conversations] have not concluded, the conversations we've been having with a number of agencies on leveraging our capabilities across both software as well as consulting.

"To help them go on their paths towards modernization, towards better services for citizens, towards reducing waste, towards more effective overall systems, kind of coming all the way into the 21st century."