The economy is a feeling a touch blue — as seen through the lens of one of the world’s largest tech players, IBM (IBM).
“Interest rates are higher for longer than most people supposed in the middle of last year. So as you take that into account, if interest rates are 2%, 3% higher for the five and 10-year (bond), then people thought that means all of the debt is going to carry an extra price,” IBM CEO Arvind Krishna told Yahoo Finance at the Milken Institute Global Conference on Monday.
“So I think CFOs are belt-tightening against that. Now, that’s not systemic. That’s not really secular, but it is a problem that’s going to be there for a year or two,” he added. However, he remains “quite optimistic” about the US and global economy.
IBM’s first quarter shed light on the mixed economic backdrop in the US as higher interest rates take hold.
Big Blue’s first quarter sales rose 1% from the prior year to $14.5 billion, falling just shy of Wall Street estimates. The company’s lucrative consulting business saw sales unchanged amid more tepid corporate spending plans. Infrastructure sales declined 1% year on year.
Adjusted earnings of $1.68 beat consensus forecasts by $0.08.
The company reiterated a forecast of constant currency revenue growth, “consistent with its mid-single digit model.”
IBM did see momentum in its AI business, however.
The company revealed it had more than $1 billion in AI-related backlog. Krishna says companies are coming to IBM to unlock new productivity, with the economy being on the uncertain side.
IBM’s overall backlog increased 7% from a year ago.
“We view IBM’s Software and Consulting businesses well positioned for Hybrid Cloud and Digital Transformation growth ahead. However, we think the setup for the stock is challenging as investors weigh the potential for a global macroeconomic trough ahead and the company manages its way through the tail end of its most recent mainframe cycle,” JPMorgan analyst Brian Essex said in a client note.
IBM shares are up 4% year to date, underperforming the S&P 500’s 9% advance.
The enthusiasm amongst investors for all things AI rages on. But some of the excitement may be misplaced, former longtime Cisco (CSCO) CEO John Chambers said in a new episode of the Opening Bid podcast. Listen in below.
Brian Sozzi is Yahoo Finance’s Executive Editor. He is also the host of the “Opening Bid” podcast. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com. Are you a CEO and want to come on Yahoo Finance Live? Email Brian Sozzi.
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