Strong Q4 Earnings and AI Bookings Trigger IBM’s 13% Shares Jump
IBM stock price rose by 13% after the company reported strong quarterly earnings. According to Yahoo Finance, IBM’s share jump was also triggered by the company’s projected rise in AI-related bookings.
Strong Performance
IBM’s net income for quarter four rose by 1% to reach $17.6 billion. The company announced a $3.93 earnings per share against the $3.78 projected by analysts. IBM’s strong performance was attributed to its software business, which includes Red Hat. Earnings from the software business rose by 10% while that of its consulting business continued to struggle as earnings dipped by 2%.
“IBM delivered a strong quarter highlighted by better solid overall software revenue at $7.9 billion vs. consensus of $7.9 billion but also a continued acceleration of Red Hat growth,” said RBC Capital analyst Matthew Swanson in a report.
2025 Projections
IBM projects that in the fiscal year ending December 2025, its cash flow will hit the $13.5 billion mark. This is over $1 billion more than the $12.9 billion forecasted by Wall Street analysts. The company is expected to record a 5% increase in constant currency. However, current rates would reduce this growth by about 2%.
The company reported that since 2023, bookings for IBM’s AI consulting and software have surpassed the $5 billion mark, up from the $3 billion the tech giant reported in quarterly earnings in July. Majority of the bookings, up to 80%, come from IBM’s consulting unit. Only 20% of the bookings come from its software business.
For years now, IBM has been working to transform from a traditional computer manufacturer to a firm that focused on development of high-growth software and services. The company has leveraged acquisitions to expand its tech product range.
“Three years ago, we laid out a vision for a faster-growing, more-profitable IBM. I’m proud of the work the IBM team has done to meet or exceed our commitments,” Chief Executive Officer Arvind Krishna said.
In 2023, IBM acquired Apptio for $4.6 billion. In April of the same year, it announced plans to acquire Hashicorp. The company expects to close the Hashicorp acquisition by the end of March 2025.
“We estimate HashiCorp adds about one point to total revenue growth for the year,” said BMO Capital Markets analyst Keith Bachman
Market Reaction
Following the strong quarterly performance, IBM shares surged by 13% on January 30. The stocks had risen by 7.7% in premarket trading on January 29. The company’s shares have gained 22% over the last one year.
IBM sales growth in the quarter was fueled by its software business. Software constitutes the largest and fastest growing unit in IBM. In the quarter under review, the unit grew by 10% to reach a high of $7.92 billion. This growth was largely driven by the 16% expansion in Red Hat which IBM acquired in 2019. The company announced a $3.92 profit per share for the quarter, which is slightly higher than analyst estimates. Sales revenue from the company’s consulting unit dropped for the fourth year to a low of $5.18 billion.
IBM CFO Jim Kavanaugh attributed the drop to customer shift from conventional consulting to AI projects. According to Kavanaugh, IBM generates up to 4% of its revenue from the federal government. The Trump administration has mentioned that it will be reducing expenditure across the government. These expenditure cuts will have a significant impact on the company’s revenue. Investors are concerned about the potential impact of these cuts on tech companies.
