IBM beats profit estimates as AI shift boosts software performance, shares surge
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The software segment recorded its biggest revenue jump in five years.
PHOTO: AFP
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BENGALURU – IBM surpassed fourth-quarter profit estimates on Jan 29, driven by robust demand in its software unit as businesses ramped up IT spending, sending the company’s shares soaring about 10 per cent in extended trading.
The software segment recorded its biggest revenue jump in five years, as customers prioritised spending on cloud infrastructure amid a rush to adopt the data-intensive generative artificial intelligence technology.
“When you see more growth come from software, that comes with a lot better margins,” said Mr Matt Swanson, analyst at RBC Capital Markets.
IBM also forecast revenue growth of at least 5 per cent at constant currency for fiscal 2025, higher than the 3 per cent increase seen in 2024.
This suggests “confidence in (IBM’s) AI and cloud strategy”, said Mr Michael Schulman, chief investment officer of Running Point Capital.
IBM’s AI Book of Business – a combination of bookings and actual sales across various products – stood at more than US$5 billion (S$6.75 billion) inception-to-date, up about US$2 billion from the third quarter.
The company made its “Granite” family of AI models open-source in May, in contrast to rivals such as Microsoft, which charge for access to their models.
IBM’s approach is in line with Chinese start-up DeepSeek, which last week launched a free AI assistant that it said uses less data at a fraction of the cost of incumbent services, fuelling concerns over the dominance of US tech.
“DeepSeek was an initiation that open (source) AI can play a role in the overall GenAI space,” IBM chief financial officer James Kavanaugh told Reuters in an interview.
He, however, declined to provide details on whether IBM plans to offer DeepSeek’s models on its Watsonx platform, which helps users in tasks such as deploying chatbots.
Consulting weakness
IBM’s AI book is dominated by its consulting business, which accounts for about 80 per cent of it. Software forms the rest.
But revenue from the consulting segment fell about 2 per cent to US$5.2 billion in the quarter. Software sales grew more than 10 per cent.
Companies have focused spending on longer-term consulting deals, centred on integrating AI in their businesses, which is yet to be reflected in IBM’s revenue.
Total revenue was relatively flat at US$17.55 billion for the quarter and largely in line with analysts’ estimates, according to data compiled by the London Stock Exchange Group.
IBM’s fourth-quarter adjusted per-share earnings of US$3.92 compared with estimates of US$3.75. REUTERS
