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International Business Machines shares soared to a fresh record high in Thursday trading after a better-than-expected fourth-quarter earnings report underscored the legacy software icon's place in the emerging AI-investment story.
IBM (IBM) posted only a modest Q4 revenue gain — around 1% — leading to a top-line tally of $17.55 billion. But it posted an 11% jump in software sales, the biggest in five years.
The group also said its AI-related backlog surged by $2 billion from the third quarter to $5 billion amid the acceleration in IT spending tied to the new technology race.
"We continue to see clients reprioritizing their IT spending towards digital transformation and AI initiatives for cost optimization and operational efficiency as we wrap on a strong above-market performance in 2023," finance chief James Kavanaugh told investors on a conference call late Wednesday.
"Generative AI contributed about $1.5 billion of new bookings in the quarter as clients see the value our extensive industry and enterprise AI expertise can bring to accelerating their digital transformations," he added.
The gains, of course, were set against the backdrop of China-based DeepSeek, which claims to have developed an AI agent for a fraction of current costs, with in some cases superior performance.
The introduction of DeepSeek triggered angst about the size and scope of AI-investment spending from some of the world's biggest tech companies.
DeepSeek a 'point of validation' for tech
IBM CEO Arvind Krishna said DeepSeek's advances were a "point of validation" for the use of open-sourced models such as Granite, which the group launched last year.
"We have been very vocal for about a year that smaller models and more reasonable training times are going to be essential for enterprise deployment of large language models,' Krishna said.
"We have been down that journey ourselves for more than a year. We see as much as 30 times reduction in inference costs using these approaches," he added.
"As other people begin to follow that route, we think that this is incredibly good for our enterprise clients. And we will certainly take advantage of that in our business."
Related: Analyst revisits IBM stock price target before earnings, investor day
That said, IBM sees revenue growing around 5% this year, without taking accounting for the impact of a stronger U.S. dollar. And it expects to generate around $13.5 billion in free cash flow.