IBM stock price today: Why did IBM stock fall despite beating Q3 earnings and raising guidance – Investors eye this key segment
IBM Stock Drops After Modest Software Growth in Third Quarter
IBM reported software revenue of $7.2 billion for the September quarter, in line with FactSet analysts’ consensus, according to the Market Watch report. In the software business, including Red Hat, hybrid cloud revenue increased 14%, automation revenue increased 24%, data revenue increased 8%, and transaction processing decreased 1%, according to the report.
IBM’s Red Hat Performance Attracted the Attention of Analysts
Analysts highlighted software growth as IBM’s main focus heading into a “seasonally weak” third quarter. Following the report, Evercore ISI analyst Amit Daryanani pointed to Red Hat’s slowing performance as a potential concern, Market Watch reported.
On a constant currency basis, Red Hat’s revenue increased 12%, up from 14% in the second quarter. Jefferies analyst Brent Thill noted that IBM’s software momentum over the next few quarters will depend largely on Red Hat, which IBM acquired in 2019. He described Red Hat as “the cornerstone of IBM’s software growth strategy” and said management is confident about continuing midlife growth, according to the Market Watch report.
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IBM’s Revenue and Earnings Exceed Expectations
Overall, IBM’s September quarter revenue reached $16.3 billion, up 9% from a year earlier and above the FactSet consensus of $16.1 billion, according to the report. Adjusted earnings came in at $2.65 per share, 20 cents above expectations. CEO Arvind Krishna said the company “accelerated performance across all segments” and beat expectations for revenue, profit and free cash flow, Market Watch quoted him as saying. He also highlighted that IBM’s AI business is now worth more than $9.5 billion. ALSO READ: WhatsApp issues warning over latest money-stealing scam – don’t fall for it
IBM’s Full-Year Outlook Remains Positive
According to the report, IBM projects revenue growth of more than 5% in constant currency and free cash flow for the full year to $14 billion; This figure exceeds Wall Street’s estimate of $13.6 billion.
AI Workflows and Strategic Partnerships Drive Growth
Wedbush analyst Dan Ives expected “another solid quarter” ahead of the earnings release, driven by AI demand and strategic partnerships.
Ives noted IBM’s more than 70 AI workflows for sales, finance and marketing, as well as synergies from its Red Hat and HashiCorp acquisitions, and said those factors “will increasingly drive growth in the coming quarters,” Market Watch reported.
“IBM remains the primary beneficiary of increased global investments in the organic and inorganic sectors,” he wrote on Sunday, adding that the company is using its “scalable and open foundation to innovate at a rapid pace to meet growing demand in hybrid cloud and artificial intelligence,” as quoted in the report.
FAQ
Why did IBM’s shares fall after its third quarter report?
Investors were unimpressed by modest growth in IBM’s software division despite strong overall earnings, according to the Market Watch report.
How much did IBM’s software revenue increase?
According to the Market Watch report, software revenue reached $7.2 billion, meeting analysts’ expectations.
