On January 29, IBM exceeded fourth-quarter profit expectations, fueled by strong demand in its software division as companies increased IT investments, propelling the company's shares up approximately 10% in after-hours trading.
The software unit experienced its largest revenue growth in five years, driven by customers focusing on cloud infrastructure and embracing data-intensive generative artificial intelligence technology.
Analyzing the situation, Matt Swanson, an analyst at RBC Capital Markets, noted, When you see more growth come from software, that comes with a lot better margins.
Additionally, IBM projected a revenue growth of at least 5% at constant currency for fiscal 2025, surpassing the 3% increase in 2024, signaling confidence in (IBM's) AI and cloud strategy, according to Michael Schulman, chief investment officer of Running Point Capital.
IBM's AI Book of Business, totaling over $5 billion inception-to-date, saw a $2 billion increase from the previous quarter, with IBM releasing its "Granite" family of AI models as open-source in May, distinguishing itself from competitors like Microsoft which charge for model access.
IBM's AI consulting business dominates its AI book, contributing to approximately 80% of the total, while software makes up the remainder. Despite a 2% decline in consulting segment revenue to $5.2 billion, software sales surged over 10%.
The revenue stability at $17.55 billion for the quarter was in line with analysts' forecasts, while the fourth-quarter adjusted per-share earnings of $3.92 exceeded estimates of $3.75.