11:53 AM EDT, 07/18/2024 (MT Newswires) -- International Business Machines ( IBM ) is expected to see a "tougher setup" in Q2 earnings due to a downside risk to consulting revenue but a potential upside in software results is likely to offset this challenge, Morgan Stanley said in an earnings preview on Thursday.

Morgan Stanley said it estimates IBM ( IBM ) revenue of $15.6 billion and earnings of $2.27 per share in Q2. "Overall, we don't expect to see much volatility in June quarter fundamentals," the investment firm said.

However, Morgan Stanley said it sees a downside risk to IBM's ( IBM ) consulting revenue estimates for Q2 because of the challenging spending environment and weak jobs posting data, while discretionary spending and generative artificial intelligence consulting projects are not providing significant growth.

IBM's ( IBM ) software business is expected to offset the downside in consulting revenue as the business' positive momentum will likely continue into Q2. Morgan Stanley raised software revenue estimates for Q2 and full-year 2024, according to the note.

IBM's ( IBM ) stock is at near 10-year highs with optimism around software growth, solid generative artificial intelligence bookings, and the potential increase in full-year earnings estimates already priced in, Morgan Stanley said.

IBM's ( IBM ) Q2 results are scheduled to be released on July 24.

Morgan Stanley reiterated its equal weight rating on IBM's ( IBM ) stock and kept the price target at $179.

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