Third-quarter earnings from IBM, out Wednesday, showed the tech stalwart topping views for earnings and revenue. IBM stock climbed in trading Thursday, despite a gloomy environment for tech stocks.
For the quarter ending Sept. 30, IBM said it earned an adjusted $2.20 per share on revenue of $14.8 billion. Analysts polled by FactSet expected IBM to report adjusted earnings of $2.12 per share from revenue of $14.7 billion.
"Clients are increasingly adopting our watsonx AI and data platform along with our hybrid cloud solutions to unlock productivity and operational efficiency," Arvind Krishna, IBM chairman and chief executive, said in a news release. "This is helping drive solid growth in our software and consulting businesses."
On the stock market today, IBM stock closed trading up 4.9% at 143.76.
IBM Stock: Software Business Boost
IBM recorded $6.3 billion in software sales, up 7.8% from the third-quarter in 2022. The number edged past Wall Street estimates.
"We think this was an impressive print given heightened macro concerns across the market," Evercore ISI analyst Amit Daryanani said in a client note Thursday. "IBM remains well positioned and underappreciated as a enabling technology across both software and consulting for AI deployments for enterprises, in our view."
Daryanani highlighted software sales and a 5.6% annual climb for consulting revenue, to $4.9 billion. Growth in those sectors was offset partially by a 2.4% decline in infrastructure revenue, he added.
IBM's AI Push
IBM's AI-powered Watson famously beat Jeopardy! champion Ken Jennings more than a decade ago. Yet IBM stock hasn't benefited from the buzz over generative artificial intelligence.
But IBM's leadership said its push into generative AI is starting to pay dividends.
"Our book of business in the third quarter specifically related to generative AI was in the low hundreds of millions of dollars," Krishna said on the company's earnings call. "The interest is larger, with thousands of hands-on interactions with our clients. These are across our largest clients and smaller clients, which lays the groundwork for future watsonx opportunities."
IBM is taking a hybrid approach to generative AI, Krishna added.
"We believe that generative AI will be multimodal with clients using a combination of IBM's models, other companies' models, their own proprietary models and open source models," the IBM leader said. "This hybrid approach to AI is similar to the hybrid approach to cloud" computing, he added.
Further, IBM reiterated its full-year guidance for revenue growth between 3% and 5%. Also, the company expects to generate $10.5 billion in free cash flow. It generated $5.1 billion for the first nine months of the year.
IBM Stock's Technical Ratings
IBM stock climbed Thursday despite some general doom and gloom for tech in the markets. The S&P 500, which is heavily weighted toward the Magnificent Seven tech stocks, lost 1.2%.
Facebook parent Meta Platforms and Google parent Alphabet both traded down following earnings reports.
Still, IBM stock has just a so-so IBD Composite Rating of 65 out of a best-possible 99, according to IBD Stock Checkup. Moreover, its Relative Strength Rating checks in at 75 out of a best-possible 99.
Further, IBM stock has lost about 3% this year, compared to a 10% gain for the S&P 500.
