IBM (IBM) stock slipped late Wednesday despite the tech giant reporting stronger-than-expected third-quarter earnings. IBM’s revenue missed views as accelerating software sales growth was offset by weakness in the company’s consulting and infrastructure operations.
IBM said it earned an adjusted $2.30 per share on sales of $14.97 billion for the September-ended quarter. Analysts polled by FactSet projected the Armonk, N.Y.-based company would post adjusted earnings of $2.22 per share on sales of $15.08 billion.
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For the same period a year earlier, IBM posted adjusted earnings of $2.20 per share on sales of $14.75 billion.
In after-hours trading on the stock market today, IBM stock dropped 3% to 225.85.
IBM Stock: AI Book Of Business Reaches $3 Billion
Excitement about IBM’s potential to deliver generative AI tools to enterprises has helped shares of the more-than-century-old tech giant rally over 70% in the past 12 months. Share value hit a record high for the first time in a decade last month.
In a news release, the company touted its AI progress.
“We continue to see great momentum in AI as our models are trusted, fit-for-purpose, and lower cost, with performance leadership,” Chief Executive Arvind Krishna said in a written statement. “Our generative AI book of business now stands at more than $3 billion, up more than $1 billion quarter to quarter.”
It was a strong quarter overall for IBM’s software business. Sales grew 9.7% year over year to $6.5 billion for Q3, up from 7.1% growth in the second quarter.
The sales growth acceleration was helped by Red Hat, the cloud software firm IBM acquired for $34 billion in 2019. Red Hat-related software sales grew 14% year over year in the third quarter, compared with 7% in the second quarter.
However, IBM’s revenue from consulting fell a half-percent year over year to $5.2 billion. Sales from IBM’s infrastructure business fell 7% to $3 billion.
IBM Forecast For Q4
Meanwhile, IBM said it expects fourth-quarter sales to grow at a similar rate to the 1% growth in the third quarter. The firm also maintained its forecast for $12 billion in free cash flow for the full year.
“With our strong cash generation, we are well-positioned to continue investing for growth while returning value to shareholders through dividends,” Chief Financial Officer James Kavanaugh said in the company’s news release.
IBM Stock: Extended Past Buy Point
Meanwhile, IBM stock closed regular trading Wednesday at 232.75, extended past a 196.26 cup-with-handle buy point identified by MarketSurge. Shares broke out past that level on Aug. 21 and have gained steadily in the weeks since.
Prior to the report, the company’s IBD Relative Strength Rating checked in at 91 out of a best-possible 99, indicating IBM stock has outperformed 91% of stocks over the past 12 months, according to IBD Stock Checkup.
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