Analysts were left puzzled by the decline, with the firm achieving close to 10% growth in its software segment
IBM (NYSE:IBM) shares dropped 6.17% to $218.39 Thursday after the technology company released its third-quarter 2024 financial results.
On a year-over-year basis, IBM reported $15 billion in revenue, nearly in-line with analysts’ estimate of $15.1 billion, and adjusted EPS of $2.30, beating Wall Street’s call for $2.22.
It’s not entirely clear why IBM stock fell sharply. Short-term traders may have hoped to see IBM’s evolution from an old-school personal computer seller to an artificial intelligence (AI) software specialist show up more noticeably in the company’s quarterly revenue.
IBM’s strong Software segment growth
Overall, IBM’s third quarter 2024 was mixed but respectable. The company’s revenue of $15 billion wasn’t far from analysts’ consensus forecast, and its EPS beat could have sparked a positive reaction from the market.
However, IBM’s infrastructure segment revenue declined 7% year over year to $3 billion, and the market clearly did not take kindly to this.
The firm’s exceptionally strong software segment could make up for this, though, with revenues up 9.7% year-over-year.
According to Barron’s, Melius analyst Ben Reitzes notes that a “new mainframe is coming in the first half of 2025 and the strong software business is softening the blow and helping margins”.
IBM stock: The market hates to wait
Crucially, IBM’s software segment includes the company’s AI offerings. Within this segment, the hybrid platform & solutions sub-segment revenue increased 10%, while the data & AI sub-segment grew 5% year over year.
It’s possible that these percentages weren’t good enough for short-term traders hoping to see immediate, spectacular AI software sales growth.
However, IBM’s 9.7% software segment is likely to instill confidence, with the firm’s chief financial officer Jim Kavanaugh describing the growth as “very strong” and “pervasive”.
