IBM exceeded fourth-quarter profit forecasts on Thursday, driven by robust demand within its software division, as businesses accelerated IT spending. The company’s shares surged nearly 10% in after-hours trading following the announcement.
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The software segment of IBM posted its highest revenue increase in five years, as clients prioritized cloud infrastructure investments to support the rapid adoption of data-heavy generative AI technologies. Matt Swanson, an analyst at RBC Capital Markets, pointed out that increased growth in the software sector typically leads to improved profit margins. He stated, “When you see more growth come from software, that comes with a lot better margins.”
IBM also offered a strong outlook for fiscal 2025, forecasting at least 5% revenue growth at constant currency, surpassing the 3% revenue increase anticipated for 2024. Michael Schulman, chief investment officer of Running Point Capital, interpreted the forecast as a signal of IBM’s confidence in its AI and cloud strategies. He noted, “This suggests confidence in (IBM’s) AI and cloud strategy.”
One of the key highlights in the company’s results was the performance of its AI portfolio. IBM’s “AI Book of Business,” which includes both bookings and actual sales across a range of products, reached over $5 billion in total sales to date, representing a $2 billion increase from the third quarter.
The firm’s AI efforts have included making its “Granite” family of AI models open-source in May, diverging from the approach of its competitors, such as Microsoft, which charge for access to similar models. This move aligns with the strategy of DeepSeek, a Chinese startup that recently launched a free AI assistant. DeepSeek’s offering aims to reduce data usage and costs, fueling discussions about the dominance of U.S. tech firms in the AI space.
The company’s strategic moves, particularly its focus on cloud and AI, have positioned IBM to benefit from the ongoing surge in IT investments. With more businesses exploring AI-driven solutions, the tech company’s initiatives are expected to continue driving growth in its software segment in the coming years.
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