Jan 28 (Reuters) – IBM beat Wall Street estimates on Wednesday for fourth-quarter revenue and profit, as rapid adoption of AI drives demand for its software services, which range from managing large amounts of data to automating IT processes.
The company’s shares rose nearly 9% in extended trading.
Companies have redoubled their efforts to update their software packages to develop data-intensive artificial intelligence technology, which has helped sales of software and IT services providers such as IBM.
Big Blue reported December quarter revenue of $19.69 billion, beating analysts’ average estimate of $19.23 billion, according to data compiled by LSEG.
Adjusted earnings of $4.52 per share also beat an earnings estimate of $4.32 per share.
IBM has been boosting its software portfolio, turning to inorganic growth to better address the requirements of companies adopting AI, with deals such as its $6.4 billion acquisition of HashiCorp and the ongoing $11 billion purchase of data infrastructure company Confluent.
IBM expects to absorb about $600 million of dilution from the Confluent acquisition in 2026, driven largely by stock-based compensation and interest expenses, Chief Financial Officer Jim Kavanaugh said on a post-earnings conference call.
Sales in its software segment totaled $9.03 billion in the quarter ended Dec. 31, also beating an estimate of $8.77 billion.
Within the software segment, its Automation unit grew 18% and Data unit sales grew 22% in the quarter.
FEDERAL SHUTDOWN HITS HYBRID CLOUD
However, sales growth at its high-margin hybrid cloud unit, known as Red Hat, slowed to 10% in the fourth quarter, down from 14% in the third quarter and 16% in the second.
The hybrid cloud unit’s growth was affected by the longest U.S. government shutdown in history that occurred in the final quarter of 2025, Chief Financial Officer Kavanaugh told Reuters in an interview.
The shutdown hurt Red Hat’s growth by “a couple of points,” Kavanaugh said, adding that the federal government makes up about 15% of its hybrid cloud reserves.
The federal government also appeared headed for a partial government shutdown this week, with Republicans and Democrats at odds over funding for President Donald Trump’s Department of Homeland Security.
“We’ll have to deal with that as we move forward. Hopefully, it will be a short-term disruption,” Kavanaugh said.
“If the government passes the budget resolution and gets back to business and doesn’t close, we’ll have to wait and see how it plays out.”
The company’s “AI book of business” grew to $12.5 billion in the fourth quarter, up $3 billion from the previous quarter. IBM “will stop reporting this metric separately from the first quarter,” Kavanaugh said.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Pooja Desai and Alan Barona)