Will Higher Software Revenues Benefit IBM's Q1 Earnings?

International Business Machines Corporation IBM is scheduled to report first-quarter 2024 results on Apr 24, after the closing bell. In the to-be-reported quarter, the company is likely to have recorded higher revenues from the Software segment backed by growing demand for its advanced AI-driven solutions and product innovation.

Factors at Play

The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing.

During the first quarter, IBM introduced LinuxONE 4 Express, an advanced data center solution designed to provide cybersecurity, scalability and AI inferencing for hybrid cloud environments. The solution’s cutting-edge features make it suitable for a multitude of use cases for startups and small and medium-sized enterprises.

With built-in hardware-based security technology and confidential computing capabilities, the solution effectively shields sensitive data and digital assets. It enhances protection against both external threats and insider breaches by enabling scalable isolation for individual workloads, while consolidation of databases into a LinuxONE system significantly lowers costs and streamlines IT environments. The seamless integration enables data analysis to be conducted exactly where the data is located. These are likely to have supported the top line in the Software segment.

In the first quarter, IBM integrated the open-source Mixtral-8x7B large language model into its watsonx AI and data platform. The optimized version of Mixtral-8x7B, developed by Mistral AI, showcases impressive performance gains. Internal tests reveal a remarkable 50% increase in throughput compared to the standard model. By leveraging quantization techniques to reduce the model size and memory requirements, IBM anticipates significant reductions in latency, potentially ranging from 35% to 75%, depending on batch size.

Mixtral-8x7B's incorporation underscores IBM's dedication to cutting-edge AI research and development. Built on innovative Sparse modeling and the Mixture-of-Experts technique, this model excels in rapid data processing and contextual analysis. Its ability to efficiently handle vast datasets makes it a valuable asset for businesses seeking actionable insights. All these are likely to be reflected in the upcoming results.

Overall Expectations

The Zacks Consensus Estimate for Software revenues is pegged at $5,998 million, indicating marginal growth from $5,921 million in the year-ago quarter. However, our estimate for revenues from Software is pegged at $6,140 million, suggesting a 3.7% improvement year over year.

The Zacks Consensus Estimate for total revenues for the company stands at $14,577 million. It generated revenues of $14,252 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $1.60 per share, indicating growth from $1.36 in the year-earlier quarter.

Earnings Whispers

Our proven model predicts an earnings beat for IBM for the first quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.39%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote

Zacks Rank: IBM has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this season:

Qualcomm Incorporated QCOM is set to release quarterly numbers on May 1. It has an Earnings ESP of +2.78% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Silicon Motion Technology Corporation SIMO is +5.96% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on May 2.

The Earnings ESP for Meta Platforms, Inc. META is +0.62% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Apr 24.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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