IBM? More Like "I Be Missing" Expectations As Shares Plunge -6%...

In the world of tech, IBM just pulled a classic move: disappoint Wall Street and get slapped for it. Shares dropped faster than my mood after a dreadful hour-long “compliance” Zoom meeting, sinking 5% in premarket trading after the company reported third-quarter revenue that fell short of expectations.

(Source: Giphy) 

Simply put, IBM’s total revenue came in at $14.97 billion, which is up a whopping 1% year-over-year. But here’s the thing: analysts were expecting $15.07 billion. That’s right — they missed the mark by $100 million. Lawd. Which is why Wall Street pretty much burned IBM shares at the stake, plunging prices down -5.96%. 

(Source: Yahoo Finance) 

Now with that said, not everything was bad here. The good news is that IBM’s software business is doing the heavy lifting here. Thanks to Red Hat, their 2019 acquisition, software revenue jumped 10%, hitting $6.52 billion. Red Hat alone grew 14%, which is its best quarter since being scooped up by Big Blue. Apparently, everyone who’s been betting on generative AI is still riding the high, and it’s showing up in IBM’s software numbers. The software unit even flexed an 83% gross margin — a.k.a. the kind of number that makes investors salivate.

(Source: Giphy) 

But then there's the bad. And by bad, I mean their consulting biz, which was flatter than pancake. Consulting revenue came in at $5.15 billion, just shy of the $5.19 billion analysts were banking on. CEO Arvind Krishna admitted it: consulting just didn’t deliver this quarter, and economic uncertainty isn’t helping matters. Translation? Companies are pinching pennies and cutting down on discretionary spending, which usually means fewer big-ticket consulting deals.

(Source: Reuters) 

And finally, the ugly. IBM’s infrastructure segment, home of the mainframes that used to dominate the market like Blockbuster in 1995, dropped 7%, pulling in just $3.04 billion. That’s a hefty miss compared to the $3.24 billion consensus. Apparently, customers are holding out for the next-gen mainframe, due out in 2025. Now of course, patience is a virtue, but it’s not helping IBM’s revenue today. 

(Source: Giphy) 

Now, let’s talk about the MVP of IBMs boardroom, AI. Shockingly, everyone still has their pants in a wad on the AI hype with IBM’s AI book of business is now over $3 billion, up $1 billion in just a quarter. About 80% of that AI revenue is tied to consulting, with the rest in software. But here’s the catch: while AI is growing, it’s also cannibalizing other parts of IBM’s consulting business. Instead of being a cherry on top, it’s more like the only thing on the plate. CFO Jim Kavanaugh is hopeful, though, noting that clients are focusing on freeing up costs to invest in AI.

Overall though, IBM posted a net loss of $330 million this quarter. The culprit, was of course, the struggles that I just mentioned, but what also didn’t help was the companies  one-time pension settlement charge of $2.7 billion. Thanks, Prudential. Without that, IBM’s numbers would look a lot healthier, but hey, you can’t exactly blame Wall Street for side-eyeing a $330 million loss. 

(Source: IBM) 

Looking onward and upward though, IBM expects more of the same in Q4 — in other words, revenue growth that’s “consistent” with Q3's 2%. The company’s still targeting over $12 billion in free cash flow for 2024, so at least they’re making it rain cash.

Bottom line: IBM’s software is carrying the team, but consulting and infrastructure are dragging them down. And while AI is growing, it’s still not enough to offset the broader challenges. Investors are clearly not impressed, and the stock’s taking a hit. But hey, at least they’re doing better than Intel, amirite? 

In the meantime, keep the OG tech stock on your radar and as always - stay safe and stay frosty, friends! Until next time… 

P.S. At 9:35am EST this morning, our screeners were flashing major SQUEEZE signs on one little known stock priced at $1.43 - whereas, in less than 5 minutes from notifying our premium members, this stock annihilated shorts, hitting a peak of 193.47% in less than ONE hour! Don’t miss the next massive leg up, click here now for the details…

Stocks.News holds positions in Intel as mentioned in the article.