IBM has exceeded analysts’ expectations for its second-quarter revenue and increased its annual growth forecast for its software division, benefiting from a surge in AI-related spending by clients eager to embrace the technology.
The company has concentrated on broadening its Watsonx platform, which enables users to implement chatbots or enhance code for AI programs. Additionally, IBM has made its Granite family of AI models open-source, aiming to popularize its AI services. This strategic move has positively impacted the company’s shares, which rose by about 3% in extended trading, adding to their year-to-date gains of approximately 12% amidst a rally in AI-linked stocks.
| Category | Q2 2024 | Q2 2023 |
|---|---|---|
| Software Revenue | $6.74 billion | $6.30 billion |
| Consulting Revenue | $5.18 billion | $5.23 billion |
| Total Revenue | $15.77 billion | $15.35 billion |
| Adjusted Profit per Share | $2.43 | $2.30 |
IBM’s software revenue increased by about 7% to $6.74 billion during the quarter. The 113-year-old tech giant now forecasts high-single-digit percentage growth in its software segment for 2024, compared to its previous estimate of slightly above the high end of mid-single-digit growth.
The company’s AI Book of Business, which includes bookings and actual sales across various products, grew to $2 billion, with around $1 billion added in the second quarter alone. Tejas Dessai, a research analyst at Global X, noted that the acceleration of Generative AI commercialization positions IBM to benefit from the increasing demand for AI integration.
However, IBM has lowered its expectations for annual consulting revenue, now predicting growth in low-single-digit percentages, down from its earlier forecast of 6%-8%. Consulting revenue saw a slight decline of 1% to $5.18 billion in the second quarter, as clients reduced discretionary spending and short-term consulting projects amid ongoing inflationary pressures and elevated interest rates. James Kavanaugh, IBM’s Chief Financial Officer, highlighted the impact of the challenging macroeconomic environment on clients’ technology spending priorities, with a notable shift towards long-term projects centered on AI.
Overall, IBM reported total revenue of $15.77 billion, surpassing analysts’ average estimate of $15.62 billion. The company’s second-quarter adjusted profit of $2.43 per share also exceeded the forecasted $2.20, driven by strong sales in the high-margin software sector.
Featured Image courtesy of HPCwire
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