According to Reuters, IBM beat Wall Street estimates for its fourth-quarter revenue and profit, posting $19.69 billion in sales against an expected $19.23 billion. Adjusted earnings came in at $4.52 per share, also above forecasts. The company’s software segment, a key focus, brought in $9.03 billion, driven by an 18% jump in its Automation unit and a 22% rise in its Data unit. However, growth in the critical Red Hat hybrid cloud business slowed to 10%, which CFO Jim Kavanaugh partly blamed on the historic U.S. government shutdown in late 2025. Meanwhile, IBM’s AI-related business grew to $12.5 billion in bookings for the quarter.
AI wins and cloud worries
Here’s the thing: IBM’s report is a classic tale of two businesses. On one hand, the aggressive push into AI and automation is clearly working. A $12.5 billion AI book of business? That’s a $3 billion jump in just one quarter. It shows that when Big Blue talks about integrating AI into enterprise software for data management and IT automation, companies are actually buying it. The HashiCorp and Confluent acquisitions look like they’re paying off, helping to build a more complete data infrastructure story. But then there’s Red Hat. A slowdown from 16% to 10% growth in just two quarters is noticeable, especially for what’s supposed to be a high-margin growth engine. Blaming a government shutdown is convenient, and it probably did shave off “a couple points” as Kavanaugh said. But it also exposes a vulnerability. If 15% of your bookings in a core unit can be disrupted by political gridlock, that’s a real risk factor. And with another potential shutdown looming? Not ideal.
The consulting conundrum
Another subtle red flag is the consulting segment, which just barely missed estimates. IBM says businesses are prioritizing longer-term AI projects, which sounds good in theory. But in practice, it often means delayed spending and longer sales cycles, especially amid economic uncertainty. It begs the question: is the consulting arm struggling to monetize the AI hype as quickly as the software division? Possibly. It’s easier to sell a software license or a platform than it is to sell thousands of hours of bespoke integration work. This split performance between software and services is something to watch. Can the high-flying software growth continue to offset any softness in consulting and the pressured cloud unit?
Looking ahead & political headwinds
So, what’s next? The stock’s after-hours pop suggests investors are focusing on the AI beat, which is fair. The numbers are strong. But the Red Hat slowdown and the explicit call-out of government dysfunction as a headwind can’t be ignored. Kavanaugh’s comments about “hopefully that is a short-term disruption” have a hint of crossed-fingers optimism. Basically, IBM’s fate is now partially tied to the budget battles in Washington, which is not a position any tech CEO wants to be in. The company has done a solid job repositioning itself as an AI and hybrid cloud player, but external factors—like a multi-week government shutdown—can still throw a wrench in the gears. For a company that’s all about providing critical infrastructure to other businesses, that’s a stark reminder that even the best-laid tech plans can hit non-tech obstacles.
