US Stock Market: IBM shares slide after software weakness clouds Q1 results

IBM reported first-quarter results that pointed to a slowdown in overall revenue growth, driven largely by weaker momentum in its software division, according to Reuters. The development heightened investor concerns that advances in artificial intelligence could begin to erode traditional software demand, sending the company’s shares down 6.5% in after-hours trading on Wednesday.

The growing availability of AI tools capable of automating routine corporate processes has intensified fears about disruption across the software industry. IBM has faced particular scrutiny after Anthropic indicated in February that one of its AI tools could assist in modernising COBOL, a programming language widely used on IBM’s mainframe systems.

IBM’s total revenue rose 9% year-on-year to $15.92 billion in the first quarter, a deceleration from the 12.2% growth recorded in the previous quarter. Despite the slowdown, the figure exceeded analysts’ average estimate of $15.62 billion, according to data compiled by LSEG.


The company’s software segment, which includes its hybrid cloud platform Red Hat and its Watsonx portfolio of AI tools, posted revenue growth of 11.3%, also reflecting a slower pace than in prior periods, Reuters said.

According to Reuters, CFRA analyst Brooks Idlet noted that expectations were elevated heading into the results due to market concerns about AI-driven competitive pressures. He said the quarterly performance did not confirm those fears, despite the softer growth in software and services.

In contrast, IBM’s infrastructure segment remained a strong performer. Revenue in the unit, which includes its mainframe systems, rose 15.2% to $3.33 billion during the quarter, supported by continued demand for its latest hardware, Reuters reported.

Analysts cited by Reuters said IBM’s long-standing relationships with enterprise customers, along with its AI offerings such as the Watsonx Code Assistant designed for mainframe modernisation, could help the company compete effectively against emerging AI-focused rivals.

Chief Financial Officer James Kavanaugh told the media that clients using the Watsonx Code Assistant are experiencing increased mainframe usage, suggesting that generative AI may be reinforcing, rather than replacing, IBM’s core systems business.

IBM posted adjusted earnings of $1.91 per share for the quarter, exceeding analysts’ expectations of $1.81, according to Reuters.

On the company’s post-earnings call, Chief Executive Officer Arvind Krishna downplayed potential risks from geopolitical tensions in the Middle East. Reuters reported that he highlighted strong regional growth and said IBM could manage short-term disruptions, including a possible closure of the Strait of Hormuz, for several weeks.

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