Investing.com -- IBM reported Wednesday second-quarter earnings that beat analysts’ forecasts as growing demand for generative AI boosted new business wins and raised its free cash flows forecast for the year.
International Business Machines (NYSE:IBM) climbed more than 3% in premarket Thursday trade following the report.
For the three months ended Jun. 30, IBM reported earnings per share of $2.43 on revenue of $15.77 billion. Analysts polled by Investing.com anticipated EPS of $2.17 on revenue of $15.62B.
The company's software business, which includes transaction processing and hybrid platform & solutions, reported revenues of $6.7B, up 7.1%. Hybrid platform & solutions was up 5%, following an 7% jump in Red Hat.
"Our book of business for generative AI has grown to more than two billion dollars since the launch of watsonx one year ago," the company said.
Revenue in the company's consulting business fell 0.9% to $5.18B, missing consensus estimates of $5.23B amid weaker performance in technology consulting and applications operations segments.
Gross margin climbed to 56.8%, up 180 basis points from the same period a year earlier.
Looking ahead, the company raised its free cash flow forecast now expecting it to come in above $12B.
At the same time, the company cut its FY24 Consulting growth outlook to "low single digits" from "mid single digits", marking the second consecutive cut to FY outlook.
"IBM delivered mixed results with a higher margin software beat and lower margin consulting miss," Jefferies analysts commented. "While the quality of the beat was lower, we are encouraged by the AI book of business doubling to $2B q/q. Stock remains cheap at 21x CY25 EPS vs peers, but lack of a NT accelerant keeps us on the sidelines," they added.
Jefferies reiterated a Hold rating on the stock and lifted the price target from $190 to $200.
Similarly, BMO Capital Markets maintained a Market Perform rating on IBM shares and raised the price target from $155 to $210 after the report.
"While IBM is maintaining the rev guide for the year, we believe the sources of upside to offset lower Consulting guide have less long-term durable growth potential," the firm's analysts wrote.