IBM surpassed analyst estimates for second-quarter sales and raised its forecast for software division growth annually.
IBM (IBM.N), on Wednesday, exceeded analysts’ projections for second-quarter sales and increased its projection for yearly growth for its software division. This was due to an increase in client expenditure on AI-related projects. To help spread awareness of its AI services, the business has concentrated on growing its Watsonx platform, which enables users to create chatbots and improve the code for AI programs. It has also made its Granite family of AI models publicly available.
During extended trading, Big Blue’s shares increased by over 3%, adding to their year-to-date gains of roughly 12% from a surge in the stocks of businesses connected to AI.
During the quarter, software revenue climbed by almost 7% to $6.74 billion. Having previously predicted that the segment will increase by a percentage slightly over the top end of the mid-single-digit range, the 113-year-old corporation now projects the category to grow at a high single-digit percentage in 2024.
The business’s AI Book of Business, which is derived from actual sales across a range of products and bookings, increased to $2 billion, with roughly $1 billion coming in during the second quarter. According to Tejas Dessai, a research analyst at Global X, “the commercialization of generative AI is accelerating, positioning diversified enterprise technology companies like IBM to capitalize on the growing demand for AI integration.”
IBM, on the other hand, revised down its yearly consulting revenue forecast, now projecting low-single-digit percentage growth instead of its previous 6%–8% prediction. In response to rising longer-term interest rates and inflationary pressures, clients reduced their discretionary expenditure and short-term consulting projects, resulting in a 1% decline in consulting revenue to $5.18 billion in the second quarter. “Below the surface of a generally very dynamic macroeconomic climate, customers are selecting technology to provide them with a competitive edge. Chief Financial Officer James Kavanaugh stated, “They are investing in GenAI.”
However, you can observe that they are reprioritizing their spending and making trade-off judgments in consulting.” Spending on longer-term consulting projects focused on their AI businesses has been prioritized by companies; IBM has not yet recorded the revenue from these initiatives in its accounts. LSEG data shows that IBM posted revenue of $15.77 billion, versus analysts’ average forecast of $15.62 billion.
Strong sales in the high-margin software sector helped the company’s second-quarter adjusted profit of $2.43 per share surpass projections of $2.20.
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