- Shares climb 8% after trading update
- Fourth-quarter earnings top forecasts
- Firm says AI demand ‘accelerating’
Computer hardware and software giant IBM (IBM:NYSE) posted better-than-expected fourth quarter earnings and sales and said it was poised to gain ‘a tremendous amount of value’ as customers increased their usage of AI (artificial intelligence).
IBM shares jumped around $13 or 8% to $187 in after-hours trading on Wall Street, their highest level in more than six years.
AI DEMAND DRIVING GROWTH
For the final quarter of 2023, IBM reported adjusted earnings per share of $3.87 against analysts’ forecasts of $3.76, on revenue of $17.38 billion, up from $16.7 billion a year earlier and ahead of the $17.29 billion consensus.
‘In the fourth quarter, we grew revenue in all of our segments, driven by continued adoption of our hybrid cloud and AI offerings’, said Arvind Krishna, IBM chairman and chief executive officer.
‘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,’ added Krishna.
IBM has been something of a dark horse in the AI ‘race’ so far with few analysts seeming to get behind the stock.
STRATEGIC REPOSITIONING
Within its software business, which brought in $7.5 billion of revenue in the fourth quarter, its Red Hat division grew sales by 8%, while in its infrastructure business the hybrid systems division also saw an 8% increase in sales, partly due to bolt-on acquisitions.
‘IBM’s strategic realignment, which includes moving away from some of their antiquated business areas, has shifted focus to more technology-driven fields, particularly in AI software,’ said Global X research analyst May De in an email to clients.
The group’s ‘shift towards a platform-centric hybrid cloud strategy has been significantly reinforced by the integration of Red Hat OpenShift, which facilitates the management and deployment of applications across diverse computing environments’, added De.
For 2024, the firm is expecting mid-single-digit constant-currency revenue growth and around $12 billion in free cash flow, up from $11.2 billion last year and $9.3 billion in 2022.
