Image Source: Pixabay
 

Yesterday, IBM (NYSE: IBM) reported its first quarter results that outpaced market expectations. Despite the cautious operating environment, IBM reiterated its outlook as it expects its focus on AI initiatives to drive growth.
 

IBM’s Financials

For the first quarter, IBM’s revenues grew 0.6% to $14.54 billion, ahead of the market’s expectations of $14.4 billion. Earnings for the period came in at $1.60 per share and were also ahead of the expected $1.40 per share.

By segment, software revenue rose 7% to $6.34 billion, in line with the consensus. IBM’s consulting unit declined 2% over the year to $5.07 billion, and was slightly ahead of the $5.05 billion estimate. Its infrastructure division revenues fell 6% to $2.89 billion, ahead of the $2.76 billion estimate.

For 2025, IBM reiterated its expectation for $13.5 billion in free cash flow and at least 5% revenue growth at constant currency. For the second quarter, it forecast revenues of $16.4-$16.75 billion, ahead of the consensus of $16.33 billion.
 

IBM’s AI Focus

Annual productivity gains driven by AI are expected to reach $4.4 trillion by 2030. However, organizations are not fully equipped to realize the full efficiency of AI deployment. IBM is focusing its efforts in building an AI offering that can help address this gap. It has established a team of more than 75,000 generative AI-certified consultants to help businesses across every industry in over 75 countries. 

IBM is building its AI agents and deploying them inhouse. It is looking to merge existing workflows and automation with agentic AI capabilities to drive efficiency across the organization. IBM watsonx Orchestrate has been a key offering to this end.

The underlying Orchestration Engine has been designed to capture complex processes in a single experience. IBM has constructed pre-built assets within this Orchestrate platform and is continuing to add to the capabilities of the platform. For now, it has trained its AI to help HR address responses to questions based on the most frequently asked questions over the past three years. It has built assets for 80 use cases and aims to add more assets for other areas.

IBM realizes that while AI capabilities can help drive efficiencies in workflows, they do not eliminate the need for human decision making. For instance, within HR processes promotion processes, AI will make it easier to create the workflows needed to get the relevant information, but the decision making will rest with the team of humans. IBM is positioning Orchestrate as a mature layer on which organizations can securely enable their existing and future AI agents to work together instead of a marketplace where organizations can buy multiple APIs and piece them together.

Additionally, IBM is also focusing on its new AI Integration Services that will bring IBM’s open ecosystem of partners to help clients transform end-to-end business processes into agentic apps. Through its pool of AI consultants, its AI-powered delivery platform, and its library of pre-built Agentic AI templates that offer a suite of templates for specific business domain and industry processes, it is giving its clients the ability to transform an end-to-end workflow.

IBM recently announced the acquisition of New York-based Hakkoda, a leading global data and AI consultancy. Hakkoda was founded in 2021 by Erik Duffield to help customers move data to the cloud. It became a trusted partner with Snowflake and focused on migrating data to the Snowflake data cloud. Today, it offers a suite of services aimed at helping organizations migrate and transform data. 

IBM plans to integrate Hakkoda’s capabilities with its own IBM Consulting’s data transformation services portfolio and offer specialized data platform expertise to help clients get their data ready to fuel AI-powered business operations. Prior to the acquisition, Hakkoda had raised $5.6 million in funding from investors including Tercera, Lead Edge Capital, and Casimir Holdings. Its earlier valuation and terms of the acquisition are not disclosed.

IBM is actively leveraging its watsonx platform to develop vertical-specific AI services to address distinct industry challenges. It is combining domain-specific AI models, data management, and governance tools with consulting services to offer industry specific solutions.

For instance, within the healthcare sector, it has developed AI applications to assist in clinical decision-making and patient care. It is developing Watson Oncology at Memorial Sloan Kettering Cancer Center and Cleveland Clinic to help doctors diagnose and treat cancer patients more effectively.

Within the financial services sector, it is using watsonx platform to offer predictive AI capabilities that enhance risk assessment, fraud detection, and financial forecasting. Within the telecommunications sector, it has partnered with companies like Bouygues Telecom to transform call center operations using enterprise-ready generative AI capabilities.

I think IBM should look at expanding its vertical specific capabilities through inorganic growth as well. Machinify could be a good potential acquisition target that could help IBM provide AI services capabilities within the healthcare market.

IBM’s stock is trading at $245.48 with a market capitalization of $227.6 billion. It touched a 52-week high of $266.45 in March this year. The stock had fallen to a 52-week low of $162.62 in May last year. The stock has grown 11% during the year compared with the 14% decline registered in the Nasdaq over the year.

More By This Author:

Netflix Experiments With AI To Improve Content Discovery
Perplexity’s Valuation Keeps Soaring
Zapier Grows Through Acquisitions Within No-Code Workflow Automation