IBM Experiences Sluggish Cloud Growth as AI Mainframe Revenues Surge

IBM’s recent financial results paint a complex picture for the tech powerhouse, as a slowdown in its crucial cloud software division dampens investor optimism, even as revenues from AI-driven mainframes exceed forecasts.

For the third quarter, IBM reported revenues of $16.33 billion, surpassing analyst predictions of $16.09 billion. Nevertheless, shares dipped 5% in after-hours trading on Wall Street, indicating investor worries over the deceleration in growth of its hybrid cloud division, particularly Red Hat. The growth rate in this area slipped to 14%, down from 16% in the previous quarter, suggesting a potential peak for what has been a lucrative sector.

On a brighter note, IBM’s infrastructure segment, which includes its AI-focused mainframes, enjoyed a revenue boost of 17%, amounting to $3.56 billion. The latest mainframe, equipped with AI-optimized processors, is gaining traction within the financial industry, enabling firms to meet stringent data security and residency regulations while exploring AI applications.

IBM’s AI ventures also witnessed significant growth, reaching $9.5 billion, an increase of $2 billion since the second quarter, signaling an uptick in enterprise adoption of AI technologies.

Looking to the future, CEO Arvind Krishna anticipates that the hybrid cloud segment will achieve mid-teen growth percentages by 2026, as IBM raises its overall revenue expectations for the fiscal year, now predicting growth exceeding 5% at constant currency.

Despite the hesitancy in cloud growth raising concerns about the long-term viability of one of IBM’s strategic foundations, the company’s advancements in AI and mainframe technologies demonstrate its strong position in the high-value enterprise technology landscape.