International Business Machines Corp. (NYSE: IBM) announced terrible quarterly results. Revenue rose only 9% to $16.3 billion. Earnings did rise to $1.87 from ($0.36), but it took a charge in the year-ago quarter that affected earnings. A better way to look at the numbers is operating (non-GAAP) pretax income from continuing operations, which was $3.0 billion, up from $2.5 billion in the same period of last year.
After the report, IBM’s stock promptly dropped almost 7%.
There was some brief optimism about the company when it cut an artificial intelligence (AI) deal on October 7. This was a less-than-modest arrangement with Anthropic. That deal allows business customers access to Anthropic’s Claude AI model, enabling IBM software to access an advanced AI tool. Many of IBM’s customers are large companies, and the deal has little value to them.
The Anthropic deal stands out as less than modest when large tech companies and larger AI companies are cutting deals worth hundreds of billions of dollars. The size of these larger company deals is staggering. The private market value of AI leader OpenAI is $500 billion. IBM’s market cap is $267 billion. Among larger public companies at the top of the AI food chain, Nvidia Corp. (NASDAQ: NVDA) has a market cap of $4.4 trillion, and that of Microsoft Corp. (NASDAQ: MSFT) is $3.7 trillion.
IBM is still, and has been for years, too small to matter as a partner. The company lost whatever clout it had decades ago. In 1980, IBM ranked ninth on the Fortune 500, America’s largest companies based on revenue. Since then, it has missed the opportunity to lead in personal computers, PC operating systems, e-commerce, tech operating systems, search, and, more recently, AI. It is hard to find a tech company that lost that many chances to be a leader.
The size of its earnings is also dwarfed by market leadership. AI sector heavyweight Microsoft had revenue of $76.6 billion and net income of $27.2 billion in its most recently reported quarter.
IBM is too small to play an important role in the future of AI.
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