IBM revenue grows 4% amid demand for AI

Revenue of $17.4 billion topped the $17.29 billion forecast for Q4

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

“We are seeing very good increased demand overall” for generative AI offerings, IBM Chief Financial Officer James Kavanaugh said in an interview with Yahoo Finance. We have got thousands of clients we are having interactions with. Our use cases and pilots are up around 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 Q4.

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

IBM’s biggest growth last quarter came in its consulting business, where sales increased 5.8% to $5.0 billion, though that fell short of some analysts’ estimates. Its weakest spot was security within its software business, which declined 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 Chief Executive Officer Arvind Krishna said in a statement. Client demand for artificial intelligence 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 centre businesses, and increase the effectiveness of digital labour in financial operations and elsewhere. But he stressed it is still early.

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

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

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