Jefferies analysts highlighted the contrast between robust growth in IBM’s software segment and the lagging performance in other areas. “Software strength was broad-based, driven by growth acceleration in Red Hat, Data & AI, and outperformance in mainframe software,” analysts wrote.

Notably, IBM's AI book of business saw a staggering 50 per cent sequential growth, reaching over $3 billion. Jefferies noted this figure has climbed by $1 billion sequentially. The AI revenue is now predominantly driven by consulting, which accounts for about 80 per cent of the overall book, compared to 75 per cent in the previous quarter.

Despite the software gains, IBM faced hurdles in its infrastructure and consulting segments. Jefferies pointed out a “big miss in infrastructure,” with revenue declining by seven per cent year-over-year and falling short of expectations by six per cent.

The consulting segment also saw a 0.5 per cent year-over-year decline. Management attributed the consulting shortfall to a “tepid spending environment and weakness in discretionary spending.”

Looking ahead, Jefferies has revised IBM’s revenue outlook downward, predicting low-single-digit growth for fiscal year 2024. However, they remain optimistic about software growth, expecting it to climb to high-single-digit levels.

“We are constructive on the raise in software growth to strong high-single digit for FY24 as well as FCF guide maintained at (over) $12 billion,” analysts wrote.

IBM shares currently trade at 24 times the consensus earnings per share for 2025, compared to 30 times for Microsoft and 35 times for Oracle.

Jefferies concluded that while “shares could continue to grind higher on further software strength,” concerns regarding consulting and infrastructure performance, as well as the monetisation of AI, keep them cautious.