IBM revenue rises 4% amidst AI demand

IBM (IBM) reported revenue rose 4% last quarter, driven in part by demand for its AI products and services as well as its hybrid cloud. The computing giant also said free cash flow will improve this year.

Investors welcomed the news, and the stock finished Thursday up over 9% for its best day in nearly four years.

“We’re seeing very good increased demand overall” for generative AI offerings, IBM CFO James Kavanaugh said in an interview with Yahoo Finance. “We’ve got thousands of clients we’re having interactions with. Our use cases and pilots are up about fivefold.”

IBM earnings per share of $3.87 beat the $3.76 average of Wall Street estimates, and revenue of $17.4 billion topped the $17.29 billion forecast for the fourth quarter.

Of particular interest to analysts and investors is the company’s free cash flow, which IBM predicted will rise to about $12 billion this year from $11.2 billion in 2023. Revenue will rise by a mid-single-digit percentage, with software trending slightly above that and consulting expected to expand 6% to 8%, Kavanaugh said.

IBM’s biggest growth last quarter came in its consulting business, where sales rose 5.8% to $5.0 billion, though that fell short of some analysts’ estimates. Its weakest spot was security within its software business, which contracted by 5%.

“In the fourth quarter, we grew revenue in all of our segments, driven by continued adoption of our hybrid cloud and AI offerings,” IBM CEO Arvind Krishna said in a statement. “Client demand for AI is accelerating and our book of business for watsonx and generative AI roughly doubled from the third to the fourth quarter.”

Kavanaugh said IBM’s generative AI offerings are being used by clients to boost coding productivity, enhance call center businesses, and increase the effectiveness of digital labor in financial operations and elsewhere. But he stressed it’s still early.

“We’re moving from experimentation over the last few years to clients now beginning to scale,” he said. “I think this curve is going to be a long curve. I think gen AI is going to deliver a tremendous amount of value. The revenue realization ramp will start scaling in ‘24, and then you’ll get some inflection points in ‘25 and going forward.”

After years of being range-bound, IBM’s stock has broken out, rising about 24% over the past 12 months to an almost 10-year high.

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