Software and AI demand drive IBM’s growth despite consulting drop

Software and AI demand drive IBM’s growth despite consulting drop is profiled by BTW Media because public-source evidence links it to internet infrastructure, governance, operational dependencies, or market visibility.

• IBM beats analysts’ estimates for Q2 revenue, driven by AI and software demand, while consulting revenue declines.
• Raises annual growth forecast for software business to high-single digits amid increased AI integration.

OUR TAKE
IBM’s strong performance in the AI and software sectors underscores the growing demand for AI technologies and solutions. Despite challenges in consulting, the company’s strategic focus on AI positions it well for future growth.
— Zoey Zhu, BTW reporter

What happened

IBM exceeded analysts’ expectations for second-quarter revenue and raised its annual growth forecast for its software business, driven by increased spending on artificial intelligence (AI) by clients. The company reported a software revenue increase of about 7 percent to $6.7 billion in the quarter. IBM’s AI Book of Business, which includes bookings and actual sales across various products, grew to $2 billion, with $1 billion added in the second quarter alone.

The company has been expanding its Watsonx platform, which allows users to deploy chatbots or enhance code for AI programs. IBM has also made its Granite family of AI models open-source to promote its AI services. These strategic moves have contributed to the company’s strong performance, with shares rising about 3 percent in extended trading.

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Why it’s important

IBM’s strategic focus on AI and software is establishing it as a key player in the AI market. The company benefits from AI-linked spending by clients adopting the technology, with the commercialisation of generative AI creating new opportunities. However, IBM has revised its annual consulting revenue growth to low-single-digit percentages, down from the previous forecast of 6 to 8 percent, due to reduced discretionary spending and short-term projects amid higher interest rates and inflation.

Despite consulting challenges, IBM’s strong performance in high-margin software sales led to a second-quarter adjusted profit of $2.43 per share, exceeding estimates of $2.20. This success underscores the importance of IBM’s strategic focus on AI and software for future growth. Adapting and innovating in a dynamic macroeconomic environment will be crucial for maintaining IBM’s market position and driving long-term success.