Chairman, President and CEO of IBM Arvind Krishna attends the 55th annual World Economic Forum meeting in Davos, Switzerland, on Jan. 22, 2025.
Yves Herman | Reuters
IBM (IBM) has reported a robust third quarter, exceeding Wall Street’s expectations and bolstering its full-year guidance. The tech giant pointed to continued traction in artificial intelligence as a key driver, yet the market’s initial reaction was muted, with shares dipping 5% in after-hours trading. Investors appear to be weighing the strong results against broader macroeconomic uncertainties and IBM’s ability to sustain its growth trajectory.
Key performance indicators versus LSEG estimates:
- Earnings per share: $2.65 adjusted vs. $2.45 expected
- Revenue: $16.33 billion vs. $16.09 billion expected.
The company’s revenue marked a 9% increase compared to the $15 billion reported in the same period last year. Net income stood at $1.74 billion, or $1.84 per share, a significant turnaround from the previous year’s loss of $330 million, or 36 cents per share, which was impacted by a $2.7 billion pension settlement charge.
“Clients globally continue to leverage our technology and domain expertise to drive productivity in their operations and deliver real business value with AI,” stated CEO Arvind Krishna in the company’s release. This highlights IBM’s strategy of positioning itself as a partner for businesses seeking to integrate AI into their existing workflows.
IBM has revised its revenue guidance upwards, now projecting “more than” 5% revenue growth, an increase from the previous “at least” 5%. The company also raised its free cash flow forecast for the year to $14 billion, up from the $13.5 billion estimate provided in the last quarter. This improved outlook suggests strong confidence in IBM’s ability to generate cash and invest in future growth initiatives.
Krishna further disclosed that IBM’s AI-related bookings have surpassed $9.5 billion, a substantial increase from the $7.5 billion reported in the second quarter, indicating a rapid acceleration in demand for IBM’s AI solutions and services. This surge reflects the growing adoption of AI across various industries and IBM’s ability to capitalize on this trend through its AI platform, Watson, and related services.
Following a broader trend among tech companies, IBM has been leveraging AI to enhance operational efficiency and cut costs. Earlier this year, CEO Krishna noted that the company had replaced 200 human resources roles with AI-powered solutions, showcasing the transformative impact of AI on the labor market. While these changes inevitably raise concerns about job displacement, IBM emphasizes its focus on reskilling and creating new roles in emerging fields like AI development and sales.
From a segment perspective, IBM’s software revenue increased by 10% to $7.21 billion, aligning with StreetAccount estimates. Consulting revenue reached $5.3 billion, exceeding the projected $5.24 billion, demonstrating the value of IBM’s expertise in helping businesses navigate complex digital transformations. This is further evidence that IBM is pivoting to wards the higher margin businesses.
Notably, Infrastructure revenue, encompassing mainframe computers, experienced a significant increase of 17%, reaching $3.6 billion. This figure suggests a resurgence of demand for IBM’s mainframe technology, possibly due to its reliability and security features, which are particularly attractive to industries managing sensitive data and mission-critical applications. It is quite possible that companies are returning the fold due to cloud security issues.
The company’s board also approved a quarterly dividend of $1.68 per share, underscoring IBM’s commitment to returning capital to shareholders and its financial stability. This, coupled with the increase in revenue performance, shows the continued commitment to shareholders.
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