On Wednesday, Eastern Time, IBM released its second-quarter earnings report. As the report showed better than analysts' expectations, the company's stock price rose 5% in after-hours trading on Wednesday. According to the financial report, IBM achieved:

• Revenue of US$15.77 billion, slightly better than the expected US$15.62 billion. The company's revenue increased by 1.9% from US$15.48 billion in the same period last year.
• Net profit of US$1.83 billion, or US$1.96 per share, higher than US$1.58 billion and US$1.72 per share in the same period last year.
• Free cash flow is expected to exceed US$12 billion in 2024

What is IBM?

IBM, or International Business Machines Corporation, is a world-renowned and long-established IT giant. It is also known as the "Blue Giant" because of its blue logo. It is committed to using information technology and business process knowledge to provide customers with comprehensive solutions, using information technology and business process knowledge. IBM produces and sells computer hardware and software, and provides consulting services for system architecture and network hosting.

In the course of nearly a hundred years of history, IBM has led industrial revolutions many times, especially in the IT industry, where it has customized a number of authoritative standards. The PC standard it created is still used and developed by the public today. In terms of business scope, IBM has made great achievements in large/minicomputers and portable computers. In addition, IBM's achievements in supercomputers, UNIX and servers are also leading the industry; IBM also has profound attainments in scientific fields such as materials, chemistry, and physics. In the field of software, IBM Software Group's technology and services are also advanced. Its products include business analysis software, enterprise content management software, information management software, ICS collaboration, Rational software, etc.

AI empowers IBM's software revenue

IBM continues to move forward on the road of innovation. IBM's business includes infrastructure, software and consulting services. Driven by the AI ​​boom, the software business has obviously become an important growth driver for IBM. IBM said that its software business brought in $6.74 billion in revenue, a year-on-year increase of 7%, exceeding analysts' expectations of $6.49 billion. IBM expects the division to grow by a high single-digit percentage by the end of 2024, compared with a previous forecast of slightly above the upper end of the mid-single-digit percentage.

The company's business in generative AI has now exceeded $2 billion, CEO Arvind Krishna said in a statement. In the first quarter of this year, the figure just exceeded $1 billion. "The commercialization of generative AI is accelerating, allowing diversified enterprise technology companies such as IBM to take advantage of the growing demand for AI integration," said Tejas Dessai, a research analyst at Global X. The tech giant raised its annual growth forecast for its software business thanks to increased revenue from AI-related software. The software business has also become the company's main growth driver.

Financial report shows that IBM's consulting business is weak

IBM's consulting division contributed $5.18 billion in revenue, down 0.9% year-on-year and below the expected $5.23 billion. IBM lowered its annual consulting revenue forecast, expecting a growth rate of low single-digit percentages, compared with the previous forecast of 6%-8%.

Based on this, IBM Chief Financial Officer James Kavanaugh said: "We see a very active overall macroeconomic environment, under which customers choose technology to gain competitive advantage. They are investing in generative artificial intelligence...but they are making trade-off decisions and re-adjusting spending priorities, and you will see this reflected in the consulting industry." In addition, IBM's infrastructure division, including mainframe computers, had revenue of $3.65 billion, an increase of 0.8%, which was smaller but higher than the expected $3.51 billion. IBM Chief Financial Officer Jim Kavanaugh said that the current revenue performance of z16 mainframe computers is still better than the previous cycle.

Does IBM have much room for future growth?

Since the beginning of the year, IBM's stock price has risen by 14%, which is basically the same as the S&P 500 index. It is now quoted at $184.02. At the same time, it is worth noting that the panic of artificial intelligence is also affecting people's investment decisions. The Nasdaq 100 Index has plunged by $1 trillion due to unstoppable panic about artificial intelligence, the largest single-day drop since 2022. IBM's current revenue mainly relies on the empowerment of artificial intelligence, so it may suffer certain impacts in the future.

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