IBM shares surge 8% in extended trade as software business leads revenue beat

IBM announced quarterly sales for its closely watched software division that were above analysts' projections due to robust growth.

According to a statement released by the firm on Wednesday, revenue rose 12% to $19.7 billion in the fourth quarter. The average estimate from analysts was $19.2 billion. IBM's software division generated the biggest portion of revenue, rising 14% to $9.03 billion, also above projections.

Big Blue has made significant acquisitions of Red Hat, HashiCorp, and Confluent in an effort to focus on high-growth software. Since software now accounts for a larger portion of IBM's sales, investors have been enthusiastic about the plan.

After closing at $294.16, the shares increased by around 7% during extended trading. Over the last 12 months, the stock has increased by 30%, surpassing many of its counterparts in the technology sector.

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After accounting for currency movements, the company predicted that revenue would increase by more than 5% in 2026. That is higher than Wall Street's projected 4.1%. Free cash flow is expected to reach over $15.7 billion, exceeding the average forecast of analysts.

Since mid-2023, reservations for IBM's AI division have surpassed $12.5 billion, according to the Armonk, New York-based business. Compared to the $9.5 billion shown in its previous earnings release, that is an increase. The consulting unit accounts for a little over 80% of the reservations.

IBM's software division has prospered, but its consulting division has seen several quarters of hardship. Sales increased 3% to $5.35 billion in the fourth quarter, falling short of Wall Street's estimate of $5.38 billion.

The infrastructure unit generated $5.13 billion in revenue, topping the average estimate, on continued strong sales for the company’s latest mainframe computers released last year.