What happened
Shares of International Business Machines (IBM 0.13%) traded higher Thursday, gaining as much as 3.7%. As of 12:33 p.m. ET, the stock was still up 1.1%.
The catalyst that sent the technology stock higher was Big Blue's quarterly financial report. While the results were mixed, investors viewed them as good enough, particularly given the challenging environment.
So what
For the first quarter, IBM delivered revenue of $14.3 billion, an increase of 0.4% year over year, but that only tells part of the story. When adjusted for foreign currency headwinds, revenue jumped 4.4% in constant currency. This resulted in non-GAAP earnings per share (EPS) of $1.36, down roughly 3%.
To give the results context, analysts' consensus estimates had been calling for revenue of $14.4 billion and EPS of $1.36, so while IBM missed on the top line, profits were better than anticipated.
CEO Arvind Krishna reported that customers are "prioritizing digital transformation projects that focus on cost take out, productivity and quick returns," helping to illustrate that while opportunities remain, clients are looking for the most bang for their buck.
He also noted that artificial intelligence (AI) was driving demand. "We are seeing a lot more interest from business in using AI to boost productivity and reduce cost," he said.
Now what
While IBM expects the current macroeconomic challenges to weigh on near-term results, it reiterated its full-year forecast. The company expects revenue growth in a range of 3% to 5% in constant currency. If exchange rates remain constant, they will be neutral to sales over the full year. Management also expects to generate free cash flow of $10.5 billion, adding more than $1 billion to last year's total.
IBM continues to focus on a future led by the digital transformation, fueled by greater adoption of cloud computing and AI. So far in 2023, investors are taking a "show me" attitude, with IBM shares down about 10% year to date, a dismal performance compared to 8% gains for the S&P 500.
While the potential is vast, IBM has yet to prove it can capitalize on the opportunity. Until it shows significant progress, there are far better places for investors to put their money.
