IBM (IBM.N) exceeded analysts’ expectations for second-quarter revenue and raised its annual growth forecast for its software division, driven by a surge in client spending on artificial intelligence (AI) technologies. The tech giant’s performance was buoyed by its Watsonx platform and the open-source release of its Granite AI models, which have bolstered its AI service offerings.
IBM’s shares climbed approximately 3% in after-hours trading, continuing a 12% year-to-date increase fueled by a broader rally in AI-related stocks. The company reported a 7% rise in software revenue, reaching $6.74 billion for the quarter. IBM now anticipates a high-single-digit growth rate for this segment in 2024, a notable upgrade from its previous forecast of mid-single-digit growth.
The firm’s AI Book of Business, a composite of bookings and sales across various AI products, surged to $2 billion, with $1 billion of this amount accumulated in the second quarter alone. “The rapid advancement of Generative AI is creating new opportunities for diversified technology companies like IBM to leverage the growing demand for AI integration,” remarked Tejas Dessai, a research analyst at Global X.
Conversely, IBM has revised its annual consulting revenue projections downward, now expecting growth in the low-single-digit percentages compared to the earlier forecast of 6%-8%. Consulting revenue dipped about 1% to $5.18 billion in the second quarter, reflecting a reduction in discretionary spending by clients and delays in short-term consulting projects amidst ongoing inflation and elevated interest rates.
James Kavanaugh, IBM’s Chief Financial Officer, noted, “The macroeconomic environment remains highly dynamic. While clients are increasingly investing in technology for competitive advantage, including Generative AI, they are also making strategic trade-offs and prioritizing longer-term consulting projects related to their AI strategies.”
For the second quarter, IBM reported revenue of $15.77 billion, surpassing analysts’ average estimate of $15.62 billion, according to LSEG data. The company also delivered an adjusted profit of $2.43 per share, exceeding the anticipated $2.20, thanks to strong performance in its high-margin software sector.
Related topics: