IBM‘s (IBM) shares surged approximately 10% to $248.99 in after-hours trading on Wednesday after the company reported fourth-quarter earnings that exceeded expectations, primarily due to a significant uptick in demand for its software products. Despite a challenging year for some sectors, IBM’s strategic focus on software and AI technologies paid off, with software revenue increasing by 10% in the quarter and 8% for the full year, both figures adjusted for constant currency.
The company’s overall revenue for the fourth quarter was $17.6 billion, a 1% increase from the previous year, or 2% when adjusted for currency fluctuations. This growth was driven by the software segment, which saw an 11% rise at constant currency, while consulting revenues dipped by 2% and infrastructure by 8%. However, these declines were less severe when viewed at constant currency, reflecting some resilience in these areas despite market challenges.
Profitability also saw an uptick, with IBM’s gross profit margin improving in the quarter. The GAAP gross profit margin was 59.5%, up 40 basis points, and the operating (non-GAAP) margin was 60.6%, an increase of 50 basis points. Adjusted EPS came in at $3.92 compared with estimates of $3.75. For the full year, these margins were even more impressive, with GAAP margins at 56.7% (up 120 basis points) and operating margins at 57.8% (up 130 basis points), indicating effective cost management and operational efficiency.
Arvind Krishna, IBM’s Chairman, President, and CEO, emphasized the company’s success in the AI sector, noting a significant expansion in their generative AI business, which now stands at over $5 billion since its inception, with nearly a $2 billion increase from the last quarter. This growth in AI underscores IBM’s strategic direction towards becoming a leader in AI-driven solutions, which Krishna believes will continue to fuel IBM’s growth.
IBM’s financial health is further evidenced by its cash flow performance, with net cash from operating activities at $13.4 billion and free cash flow at $12.7 billion for the year, reflecting strong operational efficiency and cash management. Looking forward, Krishna expressed confidence in IBM’s strategy, portfolio, and innovation culture, forecasting at least 5% revenue growth and about $13.5 billion in free cash flow for 2025.
This performance and outlook suggest that IBM is not only adapting to the current technological landscape but is also positioning itself for sustained growth in an era increasingly dominated by AI and cloud computing. The company’s ability to exceed profit expectations, coupled with strategic investments in high-growth areas like AI, positions IBM favorably among investors looking for stability and growth in the tech sector.
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