Post Content Analysts have said IBM’s deep customer ties and AI offerings, such as the Watsonx Code Assistant, a coding modernization tool for the mainframe, could help it against rival AI tools. (Image: Reuters)
IBM’s revenue growth slowed in the first quarter on sluggishness in its software business, fanning fears of disruption from artificial intelligence tools and sending its shares down 6.5% after hours on Wednesday.
Concerns that AI will eat into the software business have grown with the launch of tools that can automate routine corporate functions.
IBM has especially been hit after Anthropic said in February one of its tools could help modernize COBOL, a language widely used on the company’s mainframes.
Big Blue’s revenue increased 9% in the first quarter to $15.92 billion, slower than the 12.2% growth in the previous quarter, even as it surpassed analysts’ average estimate of $15.62 billion, according to data compiled by LSEG.
IBM’s software segment, anchored by its high-margin hybrid cloud unit Red Hat, and a suite of AI tools under the Watsonx brand, also posted slower revenue growth of 11.3%.
“The stakes around these results were higher than normal given the software/services selling pressure the market has seen this year amid AI competition fears, and we do not think Q1’s results validated those fears,” CFRA analyst Brooks Idlet said.
Growth in the company’s infrastructure segment remained strong, helped by continued adoption of its latest mainframe systems. Revenue in the segment, which includes mainframe computers, grew 15.2% to $3.33 billion in the quarter.
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Analysts have said IBM’s deep customer ties and AI offerings, such as the Watsonx Code Assistant, a coding modernization tool for the mainframe, could help it against rival AI tools.
CFO James Kavanaugh told Reuters 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 said.
IBM’s adjusted quarterly profit came in at $1.91 per share, compared with estimates of $1.81.
On a post-earnings call, CEO Arvind Krishna downplayed the impact of the Middle East conflict, saying that IBM had its strongest growth in the region in decades and could absorb disruption from the closure of the Strait of Hormuz for another few weeks.
