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IBM (IBM) reported a 4% increase in revenue last quarter, driven in part by demand for AI products and services and hybrid cloud. The company also said free cash flow will improve this year.
Investors welcomed the news, sending the stock up more than 9% on Thursday to its highest level in nearly four years.
“We’re seeing very good overall demand growth” for generative AI products, IBM Chief Financial Officer James Kavanaugh said in an interview with Yahoo Finance. “We interact with thousands of clients. Our use cases and pilots have increased by about 5x.”
IBM’s earnings per share of $3.87 beat Wall Street’s average estimate of $3.76, and revenue of $17.4 billion exceeded fourth-quarter estimates of $17.29 billion.
Of particular interest to analysts and investors is the company’s free cash flow, which IBM expects to grow from $11.2 billion in 2023 to about $12 billion this year. Sales are likely to grow at a mid-single-digit rate, with software slightly higher, and Kavanaugh said he expects consulting sales to grow 6% to 8%.
IBM’s biggest growth last quarter was in its consulting business, where revenue rose 5.8% to $5 billion, but fell short of some analysts’ expectations. The weakest area was security within the software business, which shrank by 5%.
“Revenue increased across all segments in the fourth quarter due to continued adoption of hybrid cloud and AI products,” IBM CEO Arvind Krishna said in a statement. “Client demand for AI is accelerating, and our book of business for watsonx and generative AI nearly doubled from Q3 to Q4.”
Kavanaugh said IBM’s generative AI products are used by customers to improve coding productivity, strengthen call center operations, improve the effectiveness of digital labor in financial operations, and more. But he stressed it was still too early.
“We have moved from experimentation over the past few years to a stage where our clients are now starting to scale,” he said. “I think this curve is going to be a long curve. I think Gen AI will provide tremendous value. The increase in revenue realization will start to expand in 2024 and there will be some inflection point in 2025 and beyond. .”
IBM stock has broken out after years of trading in a range, rising about 24% in the past 12 months to its highest level in nearly a decade.
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