IBM's cloud business practices and revenue reporting are being scrutinized
The Securities and Exchange Commission (SEC) is investigating IBM's method of reporting cloud computing revenues, the technology giant confirmed in its quarterly filing dated yesterday. IBM is cooperating with the SEC in this matter, but no specific information was provided about the nature or scope of the investigation.
IBM's cloud revenues have been on a growth trajectory. In the first six months of 2021, IBM's cloud revenues grew by 70%. The company reports its cloud computing revenues primarily within broader categories such as software, infrastructure, and hybrid cloud platforms.
IBM's software revenue, which grew about 10% in Q2 2025, includes hybrid cloud platforms and automation tools, reflecting cloud-related software offerings, such as Red Hat. Infrastructure revenue, up 14% in Q2 2025, includes hybrid infrastructure showing an 19% increase, a portion of which is driven by cloud infrastructure demand. IBM's AI business, deeply integrated with cloud platforms, has a "generative AI book of business" exceeding $7.5 billion as of Q2 2025.
However, challenges arise in IBM's reporting process. Lack of segmentation transparency makes it difficult to isolate pure-cloud revenues precisely from earnings reports. The intertwining of mainframe hardware, software, and services complicates attribution of revenue growth purely to cloud computing. IBM's focus on hybrid cloud means clients often mix on-premises and cloud environments, making revenue recognition and categorization for cloud versus traditional IT more challenging. Evolving product integration, such as the integration of AI and cloud services, poses challenges in consistent reporting and forecasting.
Traditional IT companies, like IBM, are finding it challenging to book cloud revenues upfront as users typically pay for cloud services on a subscription basis. Sales commission for conventional software contracts is based on upfront costs, but for cloud services, companies need to find alternative ways to reward sales staff for closing deals.
It is unclear at this point whether the SEC's investigation will have any potential impact on IBM's financial standing. The investigation began in May 2013, making it an ongoing process. IBM, in its filing, stated that it is cooperating fully with the SEC and will provide any additional information requested.
This news comes as other tech giants like Accenture have adopted a "cloud broker" business model, which could potentially influence the way IBM reports its cloud revenues in the future. The SEC's investigation into IBM's cloud revenue reporting is a significant development and will be closely watched by investors and industry analysts.
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