(Reuters) – IBM (IBM) surpassed analysts’ estimates for fourth-quarter profit on Wednesday, driven by demand in its high-margin software unit as businesses ramped up IT spending, sending its shares soaring about 10% in extended trading.
The company’s software segment recorded its biggest revenue jump in five years, as customers prioritized spending on cloud infrastructure amid a rush to adopt the data-intensive generative artificial intelligence technology.
IBM’s AI Book of Business — a combination of bookings and actual sales across various products — stood at more than $5 billion inception-to-date, up about $2 billion from the third quarter.
The company made its “Granite” family of AI models open-source in May, in contrast to rivals such as Microsoft, which charge for access to their models.
IBM’s approach is in line with Chinese startup DeepSeek, which last week launched a free AI assistant that it said uses less data at a fraction of the cost of incumbent services, fueling concerns over the dominance of U.S. tech.
“DeepSeek was an initiation that open (source) AI can play a role in the overall GenAI space,” IBM Chief Financial Officer James Kavanaugh told Reuters in an interview.
He, however, declined to provide details on whether IBM plans to offer DeepSeek’s models on its Watsonx platform, which allows users to enhance code for AI programs or deploy chatbots.
IBM’s AI book is dominated by consulting, which currently makes up about 80% of it. Software constitutes only a fifth.
Revenue from the consulting segment fell about 2% to $5.2 billion in the quarter, more than analysts’ expectation of an about 1% drop.
Companies have focused spending on longer-term consulting deals, centered around integrating AI in their businesses, which is yet to be reflected in IBM’s revenue.
Total revenue was relatively flat at $17.55 billion for the quarter and largely in line with analysts’ estimates, according to data compiled by LSEG.
Its software sales growth of more than 10% was also partly countered by weakness in the infrastructure segment, which recorded a near-8% decline in revenue as its mainframe business faces tepid demand on the back of older products.
IBM posted adjusted per-share earnings of $3.92 for the quarter ended December, compared with analysts’ average estimate of $3.75.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Shilpi Majumdar)