AI demand lifts IBM earnings

Increased client spending on AI technology has driven IBM’s growth, particularly through the expansion of its Watsonx platform.
IBM has lowered its annual consulting revenue expectations, forecasting low-single-digit growth.

IBM has reported stronger-than-expected revenue for the second quarter and raised its annual growth forecast for its software business. This growth is driven by increased client expenditure on AI technology, particularly through the expansion of its Watsonx platform. Watsonx supports both AI deployment and open-source AI models. Shares rose by about 3% in extended trading, adding to a 12% gain this year from the AI sector rally.

Software revenue for the quarter grew by 7% to £6.74 billion. The 113-year-old company now expects this segment to achieve high-single-digit growth in 2024, exceeding its previous forecast. The AI Book of Business, which includes bookings and sales across various products, has grown to £2 billion, with £1 billion added in the second quarter alone.

In contrast, IBM has lowered its annual consulting revenue expectations. They are now forecasting low-single-digit growth instead of the previously anticipated 6%-8% range. Consulting revenue fell by 1% to £5.18 billion due to reduced client expenditure on short-term projects amid higher interest rates and inflation.

Overall revenue for the second quarter reached $15.77 billion, surpassing analysts’ estimates of $15.62 billion. Adjusted profit was $2.43 per share, beating the expected $2.20, driven by strong sales in the high-margin software business.