IBM's AI Bet: A $2 Billion Generative AI Business Drives Q4 Earnings Beat

IBM (NYSE: IBM) reported fourth-quarter earnings on Wednesday, beating Wall Street expectations for earnings and revenue. The company's shares rose as much as 10% in extended trading before giving up gains and settling at 9%. Here's how the company did versus LSEG consensus expectations:

Earnings per share: $3.92, adjusted, versus $3.75 expected
Revenue: $17.55 billion, versus $17.54 billion expected

IBM reported $2.92 billion in net income, or $3.09 per diluted share, versus $3.29 billion, or $3.55 per share, in the year-ago period. IBM said it expected full-year growth, adjusted for currency, of about 5% and $13.5 billion in free cash flow in 2025. IBM's overall revenue rose 1% during the quarter. For the entire year, IBM's revenue rose 1% to $62.8 billion, with software growing 8%, while infrastructure revenue declined 4%.

IBM's software segment grew 10% year-over-year to $7.9 billion, partially thanks to demand for artificial intelligence technology and strong performance from its Red Hat Linux operating system. Revenue in IBM's consulting division dropped 2% to $5.2 billion in the quarter. In a statement, IBM CEO Arvind Krishna said the company has recorded $5 billion in bookings for its generative AI business, which includes sales and future sales in the company's software and consulting division.

"We closed the year with double-digit revenue growth in Software for the quarter, led by further acceleration in Red Hat," Krishna said in a statement. "Clients globally continue to turn to IBM to transform with AI."



IBM's AI Book of Business: A Driver of Growth
IBM's AI book of business, which tracks sales and bookings across its AI-related offerings, surpassed $5 billion inception-to-date, up nearly $2 billion quarter over quarter. This growth reflects IBM's success in helping clients adopt and implement AI solutions, which in turn contributes to the company's overall revenue growth. As IBM's CEO Arvind Krishna stated, "Clients globally continue to turn to IBM to transform with AI," indicating that the company's focus on AI is resonating with its customers and driving business growth.



IBM's AI strategy aligns with its overall revenue growth strategy by demonstrating the company's commitment to investing in and leveraging AI technologies to drive business transformation and growth. This growth in AI bookings is supported by IBM's strong performance in its software segment, which grew 10% year-over-year to $7.9 billion, partially driven by demand for AI technology. IBM's AI consulting business has also been growing, with a focus on scaling AI consulting amid growing enterprise adoption. This growth positions IBM as a strong competitor in the AI consulting space, offering clients the ability to put transformational technology to work.

IBM's open-source approach to AI, with its Granite family of AI models, differentiates it from competitors like Microsoft and Google, which monetize access to proprietary models. This strategy allows IBM to offer more affordable and customizable AI solutions to enterprises, potentially attracting clients who may be hesitant to adopt proprietary, expensive AI models offered by competitors. IBM's commitment to AI, particularly generative AI, positions it as a strong competitor in the tech landscape alongside giants like Microsoft and Google.

In conclusion, IBM's AI book of business growth from $3 billion to $5 billion in a year aligns with its overall revenue growth strategy, demonstrating the company's commitment to investing in and leveraging AI technologies to drive business transformation and growth. IBM's strong performance in its software segment, growing AI consulting business, and open-source approach to AI position it as a formidable player in the AI market, competing with tech giants like Microsoft and Google.