IBM announced first-quarter earnings that revealed a dip in revenue growth, primarily due to reduced performance in its software unit, as reported by Reuters. This news raised worries among investors that progress in artificial intelligence might reduce demand for conventional software, causing the company’s stock to fall 6.5% in after-hours trading on Wednesday.
The rise of AI technologies that automate business tasks has sparked concerns about upheaval in the software sector. IBM has come under close examination following a February statement from Anthropic, which suggested one of its AI solutions could aid in updating COBOL, a language commonly employed in IBM’s mainframe setups.
Overall, IBM’s revenue increased 9% from the previous year to $15.92 billion in the first quarter, down from 12.2% growth in the prior period. This amount still surpassed the average analyst prediction of $15.62 billion, based on LSEG data.
The software division, encompassing the hybrid cloud service Red Hat and the Watsonx AI suite, saw revenue rise by 11.3%, a slower rate than in earlier quarters, according to Reuters.
CFRA analyst Brooks Idlet, as quoted by Reuters, observed that anticipation was high before the earnings release due to fears of AI-related competition. He indicated that while growth in software and services softened, the results did not fully validate those concerns.
Meanwhile, IBM’s infrastructure division performed robustly. Revenue in this area, which covers mainframe systems, grew 15.2% to $3.33 billion, fueled by steady interest in its newest equipment, Reuters noted.
Experts mentioned by Reuters pointed out that IBM’s established ties with large business clients, combined with its AI products like the Watsonx Code Assistant for mainframe updates, position the company well against new AI competitors.
Finance chief James Kavanaugh informed reporters that customers adopting the Watsonx Code Assistant are seeing higher mainframe activity, implying that generative AI could enhance rather than supplant IBM’s primary operations.
IBM reported adjusted earnings per share of $1.91, beating the analyst consensus of $1.81, per Reuters.
During the earnings discussion, CEO Arvind Krishna minimized threats from Middle East geopolitical issues. He emphasized solid growth in the region and stated that IBM could handle brief interruptions, such as a potential shutdown of the Strait of Hormuz, for a few weeks, according to Reuters.
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