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IBM’s Cloud Growth Slows Despite Strong AI Mainframe Demand and Solid Q3 Results

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IBM reported third-quarter revenue and profit that beat market expectations, but investor optimism dimmed as growth in its key cloud software division slowed. The company’s shares fell 5% in after-hours trading, despite strong results driven by soaring demand for its new AI-powered mainframe systems.

Revenue in the hybrid cloud unit, which includes Red Hat, rose 14% compared to 16% in the previous quarter — a slowdown that raised investor concern about IBM’s ability to fully capitalize on the global cloud boom. Total quarterly revenue reached $16.33 billion, surpassing analyst estimates of $16.09 billion, according to LSEG data.

CEO Arvind Krishna said IBM expects Red Hat’s growth to return to mid-teen levels by 2026. Analysts noted that the deceleration in software sales may disappoint investors, given the segment’s high margins. However, IBM’s infrastructure division, housing its mainframe business, was a standout performer with revenue up 17% to $3.56 billion.

The new mainframe, optimized for AI workloads, is being widely adopted in the financial sector due to its data security and encryption strengths. IBM’s total AI-related business has grown to $9.5 billion, up $2 billion from the previous quarter. The company raised its full-year outlook, now expecting revenue growth above 5% at constant currency.

Billionaire Tech CEO Urges Transparency About AI’s Job Impact

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Corporate leaders need to be transparent with employees about how artificial intelligence (AI) will reshape the workforce, says billionaire Jim Kavanaugh, CEO of World Wide Technology (WWT). Speaking to CNBC, Kavanaugh emphasized that it’s unrealistic to downplay AI’s transformative effects on job markets. “People are too smart to believe that nothing will change,” he noted, adding that any suggestion AI won’t affect job roles or eliminate some positions is “BS.”

Kavanaugh, whose company specializes in tech solutions like cloud computing and AI, stated that leaders must be honest, even though the full impact of AI remains uncertain. He advised business leaders to remain optimistic and focus on learning about AI, as its potential to increase productivity could outweigh disruptions. While acknowledging that AI will displace certain jobs, Kavanaugh believes it will primarily act as an “enhancer and accelerator” in most sectors.

The tech billionaire’s view echoes a broader debate: is AI a job creator or destroyer? According to a Goldman Sachs study, 300 million jobs could be automated worldwide, with up to two-thirds of current jobs in the U.S. and Europe exposed to AI automation. AI industry leaders like Clara Shih of Salesforce suggest that while some jobs will disappear, AI will also generate new roles, as seen in previous technological revolutions like the rise of the internet.

AI’s job-disrupting effects are already being felt. For instance, Klarna, a Swedish fintech company, cut its workforce by 24% in just one year due to AI-driven efficiencies. However, Kavanaugh believes this is a temporary challenge. “Most jobs aren’t going away, but they will require a new job description,” he said, urging companies to embrace AI rather than resist it.