(Bloomberg) — Shares of International Business Machines Corp. surged after the company projected strong revenue growth in the new fiscal year and a jump in AI-related bookings.
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For the fiscal year ending in December 2025, Big Blue said it expects $13.5 billion in free cash flow. That’s above the $12.9 billion anticipated by Wall Street. Revenue will expand at least 5% in constant currency, although current exchange rates would dent that expansion by two percentage points, the company said Wednesday in a statement.
Bookings for AI consulting and software have exceeded $5 billion since mid-2023, the Armonk, New York-based company said. That’s up from the $3 billion IBM disclosed during its last quarterly earnings report in July. About 80% of the bookings come from the consulting unit, with the rest from software.
IBM has worked to transform itself from a conventional computer company into one focused on high-growth software and services. It has used acquisitions to expand the company’s products, including a proposed takeover of Hashicorp Inc. announced in April and the purchase of Apptio for $4.6 billion in 2023.
“Three years ago, we laid out a vision for a faster-growing, more-profitable IBM. I’m proud of the work the IBM team has done to meet or exceed our commitments,” Chief Executive Officer Arvind Krishna said in the statement.
The shares rose as much as 12% to $255.50 after markets opened in New York on Thursday.
Total sales increased 1% to $17.6 billion in the period ended Dec. 31. Analysts, on average, estimated $17.5 billion, according to Bloomberg-compiled data. The company’s software unit was its largest and fastest growing, expanding 10% to $7.92 billion in the quarter.
Software expansion was fueled by 16% growth in Red Hat, a business IBM acquired in 2019. Adjusted profit was $3.92 per share in the quarter, ahead of the $3.74 average estimate.
Sales in IBM’s consulting unit declined for a fourth consecutive quarter to $5.18 billion. Customers continue to redirect funds from traditional consulting projects to AI-focused ones, Chief Financial Officer Jim Kavanaugh said in an interview.
The Trump administration has said it will reduce spending across the government, which has concerned investors about the potential impact on tech companies. Kavanaugh said that 3% to 4% of IBM’s revenue is tied to the federal government, and tech initiatives that may be taken by the new administration are a “significant opportunity.”
