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IBM Q4 and 2024 Earnings - Continued Growth Trend
Strong software growth, Infrastructure is inline with cyclical dynamics, but challenges remain in Consulting
IBM reported $17.6 billion in Q4 revenue, up 1% year over year and 6.4% quarter over quarter, driven by strong Software growth (up 10.4%), while Consulting and Infrastructure declined. Free cash flow reached $12.7 billion, exceeding expectations, reinforcing IBM’s investment in AI and hybrid cloud, with its generative AI business now exceeding $5 billion. The key challenge will be sustaining AI-driven growth amid market saturation and competition, making execution on differentiation and revenue expansion critical in the coming quarters.
By the Numbers
- IBM reported earnings per share of $3.92 on a non-GAAP basis and $3.11 on a GAAP basis.
- Total revenue for the quarter was $17.6 billion, reflecting a 1% year-over-year increase and a 2% rise at constant currency.
- Free cash flow for the year reached $12.7 billion, exceeding expectations and increasing 19% year over year.
- On a quarter-over-quarter basis, revenue grew 6.4% from the $16.5 billion reported in the third quarter, while free cash flow surged 51%.
- Revenue in the Software segment totaled $7.9 billion, growing 10.4% year over year and 11.5% at constant currency, driven by strong demand for Red Hat and automation solutions.
- The Consulting segment generated $5.2 billion in revenue, declining 2% year over year and 1.1% at constant currency, reflecting softer demand in technology consulting.
- The Infrastructure segment reported $4.3 billion in revenue, a decrease of 7.6% year over year and 6% at constant currency, impacted by lower IBM Z system sales.
Key Highlights:
- IBM reported a 1% year-over-year revenue growth in Q4 2024, reaching $17.54 billion.
- The company achieved an EPS of $3.92, surpassing market expectations.
- IBM's free cash flow for 2024 was reported at $12 billion.
- The company emphasized its focus on integrating artificial intelligence into its product offerings.
The News:
On January 29, 2025, IBM announced its fourth-quarter 2024 financial results, reporting a revenue of $17.54 billion, a 1% increase from the previous year. The company also reported an earnings per share of $3.92, exceeding analysts' expectations. IBM highlighted its strategic focus on artificial intelligence (AI) as a key driver for future growth. To read the full press release on IBM’s Q4 FY2024 earnings release, please click this link.
Analyst Take
IBM's Q4 2024 financial performance presents a nuanced picture of the company's current standing and future trajectory. The reported 1% year-over-year revenue growth, culminating in $17.54 billion, indicates a modest upward trend. The earnings per share of $3.92 surpassing market expectations suggests effective cost management and operational efficiency. However, the question arises: Is this growth trajectory sustainable, especially given the competitive landscape of the technology sector? HyperFRAME thinks it is from H2 onwards and for at least 4 quarters after that.
A significant portion of IBM's narrative centers around its integration of artificial intelligence into its product offerings. This strategic emphasis aligns with broader industry trends, as AI continues to be a focal point for technological innovation and business transformation. IBM's commitment to AI is evident in its recent initiatives, including the development of AI-driven solutions designed to enhance operational efficiency and provide advanced analytics capabilities. IBM does however have a challenge with gaining traction on the mindshare of the market around its AI model, Granite. Despite Granite’s claims and benchmarks for certain scenarios, it has not crossed the chasm into being a model that is talked about in the same breath as the likes of ChatGPT, Llama, Claude and now DeepSeek.
Q4 2024: A Closer Look at IBM's Software and Cloud Performance
IBM is intensifying its focus on automation, hybrid cloud, and security as the fundamental components of its transformation strategy; however, the critical question is whether these investments can result in continued revenue growth. The Q4 earnings highlighted persistent software resilience, decreasing consulting revenues, and cyclical headwinds in infrastructure, emphasizing that IBM's long-term success hinges on its capacity to use AI and hybrid cloud at scale.
The company’s generative AI book of business has surpassed $5 billion, yet a significant portion of this spending appears to be a reallocation of existing IT budgets rather than net-new investments, a key trend I am going to be tracking.
IBM's choice to open-source its Granite models with Apache 2.0 licenses shows that it sees the future of AI monetization in integrating AI into enterprise workflows, rather than competing with hyperscalers' large foundation models.
IBM and Hybrid Cloud
Hybrid cloud remains a central theme, with Red Hat OpenShift AI and RHEL AI serving as IBM’s foundation for AI-driven enterprise modernization. The company pointed to a 17% in constant currency revenue increase in Red Hat, reinforcing that hybrid cloud remains a strong growth vector, particularly as enterprises look to deploy AI workloads across private and public cloud environments. However, we are skeptical about how much room IBM has to accelerate hybrid cloud adoption without deeper ecosystem penetration, especially given the dominance of AWS, Azure, and Google Cloud. HyperFRAME will be tracking how IBM’s hybrid cloud partnerships, particularly with AWS and Microsoft, evolve in future quarters.
Our other concern is that the continued performance of Red Hat’s OpenShift suite is in the 15-18% range based on the last few quarters, given the market dynamics around the pivot to Platform Engineering and a paradigm shift from virtualization to containers driven by Broadcom’s acquisition of VMware we would expect higher than 20% growth. Jim Kavanaugh projected the same growth for the next quarter on the earnings call, we would expect more if Red Hat is winning with its virtualization strategy.
IBM also provided updates on automation and enterprise cost optimization, with Apptio playing a leading role in helping enterprises manage cloud spending more efficiently, which we are closely monitoring as FinOps becomes a huge focus for organizations in optimizing cloud spend which we also think will be a big trend in the next five years.
About the HashiCorp Acquisition
The upcoming HashiCorp acquisition, which is expected to close in H1 2025, is a logical extension, aimed at streamlining hybrid cloud infrastructure provisioning by integrating Terraform’s infrastructure-as-code capabilities with Red Hat Ansible.
Based on our analysis of the market, our perspective is that this acquisition could be a competitive differentiator if IBM successfully aligns HashiCorp’s DevOps ecosystem with its hybrid cloud automation stack. However, the real test will be execution, whether IBM can integrate these tools without losing HashiCorp’s existing developer base to hyperscalers offering competing solutions.
Partnerships Reinforcing Security
IBM recently announced partnership with CoreWeave a few days before the Earnings call.
IBM has partnered with CoreWeave to deploy a supercomputer using NVIDIA's GB200 Grace Hopper chips, aimed at training IBM's next-generation Granite AI models for enterprise use. This collaboration highlights the trend towards specialized AI infrastructure, with CoreWeave's focus on high-performance computing for AI workloads. The use of NVIDIA's Grace Hopper platform signifies an industry shift towards hardware specifically designed for AI, enhancing both training and inference capabilities. Additionally, the partnership showcases the growing trend of using hybrid cloud environments, blending CoreWeave's cloud capabilities with IBM's on-premises solutions to offer scalable AI development options.
IBM's partnership with Palo Alto Networks, including the sale of QRadar SaaS assets including the sale of QRadar SaaS assets and cross-training of consultants, signals a shift in IBM's security strategy towards ecosystem-driven monetization. This suggests IBM will focus on security partnerships rather than competing directly with cybersecurity vendors.
Mainframe and Power - Context is important
On the infrastructure front, IBM Z’s role in AI inferencing and transaction processing was a major discussion point on the earnings call. While the uniformed will jump on the QoQ decline in revenue, the mainframe isn't dead. We would reframe the -20% QoQ as a positive. Context is crucial here; the z16 was launched on April 5th, 2022, making it 11 quarters old, which is longer than the usual 8-10 quarter cycle for Z refreshes. IBM has already introduced the Telum II, suggesting a new system could be expected in the first half of 2025, continuing the trajectory seen with the z16 and Telum. With the z16 being the most successful in terms of MIPS growth, with Kavanaugh highlighting this comment in his prepared remarks and in his responses to Equity analyst questions, a measure of mainframe performance, and considering most upgrades occur in the first year post-launch, we can anticipate a significant turnaround in the second half of 2025 as AI features from Spyre and Telum II gain traction with clients.
IBM’s Power portfolio is also in the same space, while the Power 10 cycle is still gaining traction with clients, and the Power team is continuing to pivot the platform to a more cloud-centric deployment modality and focus in on partnerships with the likes of SAP with RISE, it continues to be a cyclical business. We are expecting IBM to launch Power 11 systems in H2 of 2025 and to leverage the Spyre accelerator. One key solution bundle we believe will get traction is leveraging Power for RAG and combining this with the InstructLab framework.
Looking Ahead
IBM is making the right strategic moves by aligning itself with AI-driven automation and hybrid cloud, but sustained revenue acceleration remains uncertain. The market is starting to see IBM as a growth stock again. The Software segment is driving growth, while Consulting faces spending headwinds, and infrastructure remains cyclical. IBM’s open-source AI strategy is its biggest wildcard—open-sourcing Granite models could drive adoption at scale, but monetizing AI beyond deployment will be the real challenge.
Historically, open-source success has favored those who control the most critical layers of the stack, and IBM must prove it can extract revenue from AI orchestration, automation, and hybrid cloud services rather than just enabling open innovation. HashiCorp and the continued trajectory of OpenShift and Ansible will be crucial here. HashiCorp will be accretive from day one, but we need to see whether IBM decides to ‘blue wash’ the business and integrate it into the wider Software organisation structure or run it separately like it does Red Hat. This will be key to the sucess of the acquisition.
The key trend I am going to be tracking is whether IBM can translate early AI-driven consulting wins into sustained revenue growth. If AI engagements don’t scale beyond pilot phases, IBM risks stagnation in its services business, further widening its reliance on software.
Given the refresh cycles around IBM Z and Power in H2 of 2025 we remain bullish about IBM’s prospects as we look ahead. Q2 2025 will be a challenge for the business due to the aforementioned Z and Power cycles, and the business will have to lean on Software and Consulting to deliver in Q2, but once we get past this difficult quarter, we expect an upward trend for at least four quarters.If IBM can capture the zeitgeist in the market around Granite this will be a further tailwind for the business, but this will require significant investment.
Harvy James Espellarga | Analyst In Residence - FinOps and Earnings Coverage
Harvy James Espellarga is a financial analyst with a proven track record of analysing the financial performance of tech companies. He brings a deep understanding of accountancy principles and specializes in FinOps, helping organizations optimize their cloud spending and maximize ROI. His insightful analyses have been featured in publications like Seeking Alpha, where he provides expert commentary on performance and operational strategies for tech companies. He also previously contributed to cutting-edge research on emerging industry trends at The Futurum Group, supporting leading research directors.
Steven Dickens | CEO HyperFRAME Research
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the CEO and Principal Analyst at HyperFRAME Research.
Ranked consistently among the Top 10 Analysts by AR Insights and a contributor to Forbes, Steven's expert perspectives are sought after by tier one media outlets such as The Wall Street Journal and CNBC, and he is a regular on TV networks including the Schwab Network and Bloomberg.