Photo Credit: Mikita Yo on Unsplash
 

IBM (NYSE: IBM) reported its third quarter results yesterday that outpaced expectations but it failed to excite the market. IBM’s stock fell 6% in the after-hours trading session post the result announcement.
 

IBM’s Financials

For the quarter, IBM’s revenues grew 9% to $16.33 billion, ahead of the market’s expectations of $16.09 billion. Earnings came in at $2.65 per share and were also ahead of the expected $2.45 per share.

By segment, software revenue rose 10% to $7.21 billion in line with the consensus. Its consulting unit grew 3% to $5.3 billion, ahead of the $5.24 billion estimate. Its infrastructure division revenues grew 17% to $3.6 billion. IBM continues to benefit from the AI-rush and saw its bookings for the business grow to more than $9.5 billion in the quarter compared with $7.5 billion a quarter ago.

The market was not too pleased as it expected a stronger growth from IBM’s software segment. Sales from IBM’s hybrid cloud segment, that includes Red Hat, grew 14%, which was lower than 16% growth recorded last year.

For 2025, IBM increased its expectation of free cash flow to $14 billion from $13.5 billion last quarter. It now expects to grow more than 5% in revenue compared with the at-least 5% growth expectation provided last quarter.
 

IBM’s Cognitus Acquisition

IBM continues to grow inorganically and recently announced the acquisition of SAP S/4HANA services provider, Cognitus, for an undisclosed sum. Dallas-based Cognitus was founded in 2002 and has grown into a leading SAP expert who helps enterprise clients with end-to-end SAP S/4HANA implementations and application maintenance services.

It is a SAP Gold & Co-innovation partner and is known for its data-driven solutions that help enterprises fuel growth. Its SAP-endorsed and AI-enabled software assets include Cognitus CIS-GovCon, which supports end-to-end government contracting requirements; Cognitus CLM, an AI-powered contract lifecycle management solution built for government contractors; Cognitus Data Migration, a low-code, AI solution that simplifies the migration of data from legacy systems to SAP S/4HANA; and Cognitus Real-Time Billing, which accelerates high-volume, project-based billing by processing transactions in real time.

IBM will integrate Cognitus’s capabilities into its existing SAP portfolio especially for complex and regulated industries, including Aerospace and Defense, Energy and Utilities and Manufacturing. The acquisition is part of IBM’s focus of investing in its key partners that include SAP, Microsoft, Amazon Web Services, Oracle, and Palo Alto Networks.

Prior to the acquisition, Cognitus was privately held and did not disclose its financials. Reports suggest that the company has over 700 employees. Its funding and valuation details, pre-acquisition, are not publicly known.

IBM’s stock is trading at $287.51 with a market capitalization of $266 billion. It touched a 52-week high of $301.01 in July. The stock has recovered from the 52-week low of $203.51 that it was trading at in last November.

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