(Reuters) -IBM beat Wall Street estimates for third-quarter revenue and profit on Wednesday, driven by booming demand for its software and new mainframe as the rush to deploy AI models boosts sales for the underlying technology supporting them.
Businesses have prioritized spending on improving their platforms as they upgrade their systems to develop data-intensive artificial intelligence tech, helping drive demand for IBM's high-margin software segment.
However, the company's shares, which have risen
about 30% so far this year, fell nearly 4% in extended trading.
IBM recorded third-quarter revenue of $16.33 billion, beating analysts' average estimate of $16.09 billion, according to data compiled by LSEG.
The company's adjusted profit of $2.65 per share for the September quarter also came in above estimates of $2.45.
The software segment grew 10% to $7.21 billion, beating estimates.
Big Blue also saw strong demand for its latest mainframe - an iteration of a high-performance computer- following a three-year cycle for its previous version.
The new mainframe, which is powered by chips specialized for AI applications, is being widely used by the financial industry, allowing for the maintenance of strict data residency and encryption rules as they work on adopting AI tech, CFO Jim Kavanaugh told Reuters.
"Addressing client pain points, around AI, around sovereignty ... that is driving the client buying behavior overall."
The infrastructure segment, housing its mainframe, saw revenue rise 17% to $3.56 billion in the quarter.
However, IBM's AI book of business grew to $9.5 billion, up $2 billion from the second quarter, but did not include mainframe sales.
Revenue and bookings from consulting made up about $7.5 billion of the book, which combines bookings and actual sales across various products, Kavanaugh said.
Consulting revenue grew about 3% to $5.32 billion, as clients prioritized spending on big-ticket AI-linked consulting projects.
IBM also raised its outlook for the current fiscal year, expecting revenue to grow more than 5% at constant currency, up from its prior forecast of at least 5% growth.
(Reporting by Arsheeya Bajwa; Editing by Maju Samuel)
