IBM's revenue rises 4% amid demand for artificial intelligence

IBM (IBM) reported its revenue rose 4% in the latest quarter, due in part to demand for AI products and services as well as hybrid cloud. The computing giant also said free cash flow will improve this year.

Investors welcomed the news, and the stock was up 11.5% on Thursday by mid-morning.

“We're seeing a very good increase in demand overall” for generative AI offerings, James Cavanaugh, IBM's chief financial officer, said in an interview with Yahoo Finance. “We have thousands of customers that we interact with. Our use cases and betas have multiplied by about five-fold.

IBM's earnings per share of $3.87 beat the $3.76 average Wall Street estimate, and revenue of $17.4 billion beat expectations of $17.29 billion for the fourth quarter.

Of particular interest to analysts and investors is the company's free cash flow, which IBM expects will rise to about $12 billion this year from $11.2 billion in 2023. Revenue will rise by a mid-single digit percentage, with software trending slightly higher than that. . Consulting is expected to expand 6% to 8%, Kavanaugh said.

IBM's biggest growth last quarter came in its consulting business, where sales rose 5.8% to $5.0 billion, although that was below some analysts' estimates. Its weakest point was software security, which declined by 5%.

“In the fourth quarter, we increased revenue across all of our segments, driven by the continued adoption of our hybrid cloud and AI offerings,” IBM CEO Arvind Krishna said in a statement. “Customer demand for AI is accelerating and our Watsonx and generative AI track record nearly doubled from Q3 to Q4.”

Cavanaugh said IBM's generative AI offerings are being used by customers to boost programming productivity, enhance contact center businesses, and increase the effectiveness of digital work in financial operations and elsewhere. But he stressed that it is still early.

“We are moving from experimentation over the last few years to customers who are now starting to expand,” he said. “I think this curve is going to be a long curve. I think the new generation of AI is going to deliver a tremendous amount of value. The revenue ramp will start to widen in '24, and then you'll get some inflection points in '25 moving forward.

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After years of staying within a range, IBM stock has risen nearly 24% over the past 12 months to reach its highest level in nearly 10 years.

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