April 22 - IBM outperformed Wall Street estimates for the first quarter as growing adoption of artificial intelligence lifted demand for its software services, which are used to manage large datasets and to automate IT operations. The company posted revenue and adjusted earnings that surpassed consensus, yet its stock declined by about 6% in extended trading.
Enterprise appetite for generative AI and hybrid cloud - the model that lets firms run applications and store data across private data centers and public cloud providers - has accelerated, underpinning demand for IBM’s higher-margin software offerings. The company’s software division, anchored by its hybrid cloud platform Red Hat and a portfolio of AI tools marketed under the Watsonx name, expanded 11.3% in the quarter.
IBM’s infrastructure business also delivered strong results. That segment, which includes the company’s mainframe systems, posted a 15.2% revenue increase to $3.33 billion as customers continued to adopt the latest z17 generation. IBM mainframes are secure, high-performance servers that handle millions of daily transactions for major banks, airlines and retailers.
Market attention has focused on whether AI could disrupt parts of IBM’s business after a technology firm said its coding tool might modernize COBOL, a language widely used on IBM mainframes. Some analysts have responded by emphasizing IBM’s entrenched customer relationships and its broader set of AI solutions, including Watson Code Assistant, which is designed for mainframe code modernization.
CFO James Kavanaugh said clients using the tool are seeing faster growth in mainframe consumption. He added, "Gen AI in modernization of mainframe is actually an accelerator and accretive to the mainframe portfolio overall."
For the quarter, IBM reported revenue of $15.92 billion, topping analysts’ average estimate of $15.62 billion based on LSEG data. Adjusted profit was $1.91 per share, above the $1.81 per share estimate.
Context and implications
The results highlight two key commercial drivers for IBM: software revenue tied to hybrid cloud deployments and AI-focused tools, and resilient demand for mainframe infrastructure. Both areas contributed to the company beating revenue and earnings expectations for the period. Nonetheless, after-hours market reaction suggests investor concern about near-term headwinds or uncertainties related to AI’s impact on legacy systems.