IBM quarterly results reignite AI disruption fears as software growth slows to 11.3%

IBM Posts In-Line Software Sales That Fail to Shake AI Concerns

International Business Machines Corp. posted quarterly sales in its software unit that were in line with estimates, failing to shake investor concerns about AI disruption to its business. Software revenue increased 11% to $7.05 billion in the period ended March 31, the company said Wednesday in a statementBloomberg Terminal. Total revenue increased 9% to $15.9 billion compared with analysts' average estimate of $15.7 billion. Big Blue has refashioned itself into a high-growth software through major acquisitions of Red Hat, HashiCorp and Confluent. The company's new focus has made it a target for investors concerned that artificial intelligence tools will replace many current software products. In February, IBM saw its steepest selloff in decades after AI startup Anthropic PBC unveiled a tool it said could help modernize a dated programming language that runs on IBM mainframes. Investors were looking for better results from the software unit, Brent Thill, an analyst at Jefferies, said in an interview on Bloomberg Television. Wall Street is likely to ask whether customers are delaying purchases with IBM while they test out tools from AI firms, he added. The shares declined about 6% in extended trading after closing at $251.86 in New York. The stock has slipped 15% this year. IBM, like most software providers, has tried to integrate AI into its products and touted its ability to provide customers with the latest technology. The company expects 2 percentage points of growth for its software unit tied to generative AI work this year, Chief Financial Officer Jim Kavanaugh said in an interview. AI-related work increases demand for IBM's infrastructure software, which lets clients to work with leading AI models, he added. IBM's infrastructure business, which includes mainframe computers, generated sales that rose 15% to $3.33 billion, out-performing analysts' estimates. Consulting unit revenue increased 4% to $5.27 billion, the highest growth rate for the struggling business since 2023. The company maintained an earlier forecast for revenue to grow more than 5% this year, when adjusting for currency fluctuations.

US software stocks slide as IBM, ServiceNow results reignite AI disruption fears

April 23 (Reuters) - U.S. software stocks fell in premarket trading on Thursday, following quarterly results from IBM and ServiceNow that reignited fears about AI-driven disruption across the sector. International Business Machines (IBM.N), opens new tab said its revenue growth slowed in the first quarter, pressured by weakness in its software business, anchored by its Red Hat cloud unit. Growth in the segment slowed to 11.3%, sending the Big Blue's shares 7.4% lower. ServiceNow (NOW.N), opens new tab also flagged a hit to its first-quarter subscription revenue service, citing delays in Middle East deals due to the ongoing Iran conflict. Although ⁠both companies reported first-quarter revenue and profit above analysts' expectations, the results failed to allay investor fears about the sector. "The challenge is shifting from simply having an AI story to proving that it can support products, workflows, and returns," said analysts at UBS Global Wealth Management. "Widespread disruption in software is more likely a long-tail scenario than an immediate one, especially for enterprise-facing and mission-critical providers with sticky customer relationships." Investor concerns around AI disruption have been building since Anthropic launched new tools in February ⁠that automated tasks across domains, including marketing and data analytics, raising questions about the pressure such products could put on traditional software businesses. Microsoft (MSFT.O), opens new tab lost 1.8% in premarket trading. Adobe (ADBE.O), opens new tab fell 2%, CrowdStrike (CRWD.O), opens new tab was off 2.2%, Intuit (INTU.O), opens new tab was down 3.2% and Datadog (DDOG.O), opens new tab shed 2.4% before ⁠the bell. Meanwhile, analog chipmaker Texas Instruments (TXN.O), opens new tab surged 11.7% after it forecast second-quarter revenue and profit above estimates. Other analog chip suppliers, including ON Semiconductor (ON.O), opens new tab, Microchip Technology (MCHP.O), opens new tab, NXP Semiconductors (NXPI.O), opens new tab and Analog Devices (ADI.O), opens new tab, also ⁠climbed, between 3.7% and 4.7%. The AI boom has brought opposing fortunes for chip stocks and software, with the S&P 500 software and services index (.SPLRCIS), opens new tab down over ⁠13% so far this year, while the Philadelphia SE Semiconductor index (.SOX), opens new tab has jumped almost 40%. The benchmark S&P 500 (.SPX), opens new tab has gained about 4% in the same period. Reporting by Purvi Agarwal and Shashwat Chauhan in Bengaluru; Editing by Shinjini Ganguli Our Standards: The Thomson Reuters Trust Principles., opens new tab

IBM tops quarterly estimates on hybrid cloud growth

April 22 (Reuters) - IBM (IBM.N), opens new tab beat first-quarter profit estimates on Wednesday as artificial intelligence adoption boosted demand for its software services used for managing large amounts of data and automating IT processes. However, shares of the company were down about 6% in extended trading. Enterprise demand for generative AI and hybrid cloud, which lets companies run applications and store data across their own data centers and public clouds, is surging as businesses automate workflows. IBM's software segment, anchored by its high-margin hybrid cloud ⁠unit Red Hat, and a suite of AI tools under the Watsonx brand, grew 11.3% in the first quarter. Big Blue's infrastructure segment, which includes its mainframe computers, has been a bright spot for over a year, as adoption of the latest generation, z17, continues. Revenue in the segment grew 15.2% to $3.33 billion in the quarter. IBM mainframes are secure, high-performance servers that process millions of daily transactions for major banks, airlines and retailers. Investors have also been watching for signs that AI ⁠could threaten parts of IBM's business after shares took a hit in February, when Anthropic said its Claude Code tool could help modernize COBOL, a language widely used on IBM mainframes. Analysts have pushed back on those fears, saying IBM's deep customer ties ⁠and broader AI offerings, including Watson Code Assistant, a coding modernization tool for the mainframe. CFO James Kavanaugh said 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 told Reuters in an interview. For the first quarter, IBM ⁠reported revenue of $15.92 billion, beating analysts' average estimate of $15.62 billion, according to data compiled by LSEG. Adjusted profit came in at $1.91 per share, compared with estimates of $1.81 apiece. Reporting by Anhata Rooprai in Bengaluru; Editing by Maju Samuel Our Standards: The Thomson Reuters Trust Principles., opens new tab

US software stocks slide as IBM, ServiceNow results reignite AI disruption fears - The Economic Times

US software stocks fell in premarket trading on Thursday, following quarterly results from IBM and ServiceNow that reignited fears about AI-driven disruption across the sector.US software stocks fell in premarket trading on Thursday, following quarterly results from IBM and ServiceNow that reignited fears about AI-driven disruption across the sector. International Business Machines said its revenue growth slowed in the first quarter, pressured by weakness in its software business, anchored by its Red Hat cloud unit. Growth in the segment slowed ⁠to ⁠11.3%, sending the Big Blue's shares 7.4% lower. ServiceNow also flagged a hit to its first-quarter subscription revenue service, citing delays in Middle East deals due to the ongoing Iran conflict. Although both companies reported first-quarter revenue and profit above analysts' expectations, the results failed to allay investor fears about the sector. "The challenge is shifting from simply having an AI ⁠story to proving that it can support products, workflows, and returns," said analysts at UBS Global Wealth Management. "Widespread disruption in software is ⁠more likely a long-tail scenario than an immediate one, especially for enterprise-facing and mission-critical providers with sticky customer relationships." Investor concerns around AI disruption have been building since Anthropic launched new tools in February that automated tasks across domains, including marketing and data analytics, raising questions about the pressure such products could put on traditional software businesses. Microsoft lost 1.8% in premarket trading. Adobe fell 2%, CrowdStrike was off 2.2%, Intuit was down 3.2% and Datadog shed 2.4% before the bell. Meanwhile, analog chipmaker Texas Instruments surged 11.7% after it forecast second-quarter revenue and profit ⁠above estimates. Other analog chip suppliers, including ON Semiconductor , Microchip Technology, NXP Semiconductors and Analog Devices, also climbed, between 3.7% and 4.7%. The AI boom has brought opposing fortunes for chip stocks and software, with the S&P 500 software and services index down over 13% so far this year, while the Philadelphia SE Semiconductor index has jumped almost 40%. The benchmark S&P 500 has gained about 4% in the same period.

IBM revenue growth slows on AI worries; shares fall

IBM's first-quarter revenue growth slowed to 9%, raising concerns about AI's impact on its software business, particularly after a rival tool showed promise in modernizing COBOL. Despite this, infrastructure segment growth remained robust. IBM's CFO highlighted that generative AI is actually accelerating mainframe adoption, suggesting a positive outlook for the company's core offerings. 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 over 6% 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. 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.

US Tech Fractures as Software Comes Under Pressure, While Semiconductors Remain in Favor

IBM and ServiceNow reported Q1 results that pretty much beat expectations, yet failed to reassure investors. IBM posted quarterly revenue of $15.9bn, up 9%, with software revenue growing 11% and free cash flow reaching $2.2bn. Meanwhile, ServiceNow reported Q1 revenue of $3.77bn, including $3.671bn from subscriptions (up 22%), while raising its full-year recurring revenue guidance. Nevertheless, the market penalized both stocks: IBM tumbled 10.3% on Thursday and ServiceNow slumped nearly 15%. The sell-off spread across the industry, with Microsoft shedding 2.7%, Adobe and CrowdStrike losing 3%, and Intuit falling 6.2%. This sharply negative reaction to earnings stems from growing pessimism regarding software publishers since the release of agentic coding and automation tools last winter. Anthropic is marketing Claude Code as an agentic coding system capable of reading code, editing files, running tests and delivering finished code. OpenAI is also pushing Codex as a tool capable of managing multiple agents in parallel for long-term tasks. With these tools, almost anyone can program custom software, which naturally challenges certain historical competitive advantages of software vendors, particularly barriers to entry. Conversely, the development of these "AI agents" directly benefits the semiconductor industry, where demand continues to surge, as evidenced by the sector's initial quarterly results. Last week, ASML raised its 2026 revenue guidance to €36bn-€40bn, noting that chip demand remains ahead of supply, driven by investments in AI infrastructure. This week, Texas Instruments reported $4.83bn in revenue and net profit of $1.55bn, with momentum driven by the industrial sector and, crucially, data centers. The stock jumped 10%, pulling ON Semiconductor, Microchip, NXP, and Analog Devices in its wake, all rising between 3.5% and 4.5%. STMicroelectronics added further weight to this thesis with $3.10bn in Q1 revenue, a Q2 target of $3.45bn, a book-to-bill ratio of over 1, and a more constructive outlook on demand, propelling the stock up as much as 10% during the session. This dispersion is particularly significant: year-to-date, the IGV software ETF has retreated by approximately 18%, while the SMH semiconductor ETF has gained over 30%. It remains to be seen whether software publishers can shift the current narrative, as a return of confidence could trigger a significant re-rating for a sector where valuation multiples are at levels rarely seen in over a decade.