IBM beats quarterly revenue estimates on software strength, AI demand

IBM beat analysts' estimates for second-quarter revenue this week, riding on strong demand for its software and higher artificial intelligence-linked spending by clients looking to tap the booming technology, sending its shares up 5 per cent in extended trading.

The company reported revenue of US$15.77 billion, compared to analysts' average estimate of US$15.62 billion, according to LSEG data.

IBM has focused on expanding its Watsonx platform that allows users to deploy chatbots or enhance code for AI programs, while also making its Granite family of AI models open-source to help popularize its AI services.

Big Blue's shares have risen about 12 per cent so far this year, as investors bank on a rally in AI-facing shares to drive gains for IBM.

Sales in the software segment increased about 7 per cent to US$6.74 billion. About 75 per cent of the revenue was recurring, cheif financial officer James Kavanaugh told Reuters.

The company's AI Book of Business - a combination of bookings and actual sales across various products - grew to US$2 billion, of which about US$1 billion was added in the second quarter.

Consulting made up 75 per cent of the AI book with the rest coming from software, Kavanaugh said.

Still, consulting revenue fell about 1 per cent to US$5.18 billion as clients cut back on discretionary spending and short-term consulting projects.

"You're seeing an overall very dynamic macroeconomic environment, and underneath that, clients are choosing technology for competitive advantage. They are spending on GenAI," Kavanaugh said.

"But they are making trade-off decisions and spending reprioritizations, and you see that play out within consulting."

Companies have prioritised spending on longer-term consulting projects centered on their AI businesses - revenue from which is yet to be reflected in IBM's books.

Still, second-quarter adjusted profit of US$2.43 per share beat estimates of US$2.20, as robust sales in the high-margin software business have helped offset consulting weakness.