IBM tops quarterly estimates on hybrid cloud growth

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April 22 : IBM beat first-quarter profit estimates on Wednesday as artificial intelligence adoption boosted demand for its software services used for managing large amounts of data and automating IT processes.

However, shares of the company were down about 6 per cent in extended trading.

Enterprise demand for generative AI and hybrid cloud, which lets companies run applications and store data across their own data centers and public clouds, is surging as businesses automate workflows.

IBM's software segment, anchored by its high-margin hybrid cloud unit Red Hat, and a suite of AI tools under the Watsonx brand, grew 11.3 per cent in the first quarter.

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Big Blue's infrastructure segment, which includes its mainframe computers, has been a bright spot for over a year, as adoption of the latest generation, z17, continues. Revenue in the segment grew 15.2 per cent to $3.33 billion in the quarter.

IBM mainframes are secure, high-performance servers that process millions of daily transactions for major banks, airlines and retailers.

Investors have also been watching for signs that AI could threaten parts of IBM's business after shares took a hit in February, when Anthropic said its Claude Code tool could help modernize COBOL, a language widely used on IBM mainframes.

Analysts have pushed back on those fears, saying IBM's deep customer ties and broader AI offerings, including Watson Code Assistant, a coding modernization tool for the mainframe. 

CFO James Kavanaugh said clients using the tool are seeing faster growth in mainframe consumption.

"Gen AI in modernization of mainframe is actually an accelerator and accretive to the mainframe portfolio overall," he told Reuters in an interview.

For the first quarter, IBM reported revenue of $15.92 billion, beating analysts' average estimate of $15.62 billion, according to data compiled by LSEG. Adjusted profit came in at $1.91 per share, compared with estimates of $1.81 apiece.

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