IBM beats fourth-quarter revenue estimates as AI boosts software demand

Jan 28 (Reuters) - IBM IBM.N beat Wall Street estimates for fourth-quarter revenue and profit on Wednesday, as the rapid adoption of artificial intelligence boosts demand for its software services, ranging from managing swaths of data to automating IT processes.

Businesses have doubled down on upgrading their software suites to develop data-intensive AI technology, helping sales for IT service and software 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 estimate of profit of $4.32 per share.

IBM has been boosting its software portfolio, turning to inorganic growth in a bid to better address the requirements of companies adopting AI.

Sales in its software segment stood at $9.03 billion in the quarter ended December 31, also beating an estimate of $8.77 billion.

Within the software segment, its Automation unit grew 18%, boosted by the firm's $6.4 billion acquisition of HashiCorp.

Similarly, sales in the Data unit grew 22% in the fourth quarter. IBM is acquiring data infrastructure company Confluent CFLT.O in a deal valued at $11 billion, looking to boost sales in the data sub-segment.

FEDERAL SHUTDOWN HITS HYBRID CLOUD

However, sales growth in its high-margin hybrid cloud unit - known as Red Hat - decelerated to 10% in the fourth quarter, down from 14% in the third quarter and 16% in the second.

Growth in the hybrid cloud unit was hurt by the longest U.S. government shutdown in history that occurred in the last quarter of 2025, IBM CFO Jim Kavanaugh told Reuters in an interview.

The shutdown hurt Red Hat growth by "a couple points", Kavanaugh said, adding that the federal government constitutes about 15% of its hybrid cloud bookings.

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're going to have to deal with that as we move forward. Hopefully that is a short-term disruption," Kavanaugh said.

"If the government approves the budget resolution and gets back to business and doesn't go on a shutdown, we'll have to wait and see how that 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's consulting segment reported sales of $5.35 billion, missing an estimate of $5.38 billion, according to data compiled by LSEG, as businesses have prioritized spending on longer-term AI projects amid macroeconomic uncertainty.