Jan 28 (Reuters) – IBM beat Wall Street estimates for fourth-quarter revenue and profit on Wednesday, as rapid adoption of AI boosts demand for its software services ranging from managing massive amounts of data to automating IT processes.
The company’s shares rose nearly 9% in extended trading.
Companies have doubled down on software packages to develop data-intensive artificial intelligence technology, boosting sales for IT services and software vendors like IBM.
Big Blue reported quarterly revenue of $19.69 billion in December, beating the average analyst estimate of $19.23 billion, according to data compiled by LSEG.
Adjusted earnings of $4.52 per share also exceeded expectations of $4.32 per share.
IBM has boosted its software portfolio and turned to inorganic growth to better meet the needs of companies adopting AI, with deals such as the $6.4 billion acquisition of HashiCorp and the ongoing $11 billion acquisition of data infrastructure company Confluent.
IBM expects to absorb about $600 million in dilution in 2026 from the Confluent acquisition, largely driven by stock-based compensation and interest expense, CFO Jim Kavanaugh said in a post-earnings call.
Software segment revenue was $9.03 billion in the quarter ended December 31, also beating an estimate of $8.77 billion.
Within the software segment, the Automation unit grew by 18% and the Data unit’s revenue by 22% in the quarter.
FEDERAL CLOSURE HITTS HYBRID CLOUD
However, revenue growth at its high-margin hybrid cloud unit – known as Red Hat – slowed to 10% in the fourth quarter, down from 14% in the third quarter and 16% in the second.
Growth in the hybrid cloud unit was hurt by the longest U.S. government shutdown in history that occurred in the last quarter of 2025, CFO Kavanaugh told Reuters in an interview.
The shutdown hurt Red Hat’s growth by “a few points,” Kavanaugh said, adding that the federal government accounts for about 15% of its hybrid cloud bookings.
The federal government also appeared headed toward a partial government shutdown this week, with Republicans and Democrats at odds over funding for President Donald Trump’s Department of Homeland Security.
“We’ll have to deal with that as we move forward. Hopefully that’s a short-term disruption,” Kavanaugh said.
“If the government passes the budget resolution, gets back to work and does not go into a shutdown, we will have to wait and see how that turns out.”
The company’s AI book grew to $12.5 billion in the fourth quarter, up $3 billion from the previous quarter. IBM will stop reporting this metric separately starting in the first quarter, Kavanaugh said.
(Reporting on RAjwa bČ in Bengaleur; Edriing by Stat Aani Bangona).
