IBM's AI Mainframe Will Boost Revenue This Year

Source The Motley Fool

While International Business Machines (NYSE: IBM) generates most of its revenue from software and consulting services, the company's hardware business is still an important piece of the puzzle. IBM's mainframe systems, known for their extreme reliability, remain a workhorse in certain industries. Of the world's 50 top banks, 43 use IBM's mainframes to handle mission-critical workloads.

Every two to three years, IBM refreshes its mainframe lineup with a new model that brings improved performance and expanded capabilities. IBM works with its clients to push the mainframe in the right direction, and lately, that direction has been toward artificial intelligence (AI).

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

A mainframe with AI superpowers

IBM announced its latest mainframe system, the z17, on Tuesday. The z17 is powered by the IBM Telum II processor, which the company detailed last year.

In addition to general performance improvements over its predecessor, the Telum II features an on-chip AI accelerator capable of churning through 450 billion AI inferencing operations per day. Response times are around one millisecond, making the system ideal for use cases that need near-instant results. One example IBM noted was running a credit card fraud-detection model in real time as transactions are being processed.

On top of the AI capabilities of the Telum II processor, IBM plans to launch its Spyre Accelerator in the fourth quarter of this year. Spyre is an AI expansion card that can be plugged into the z17 to provide more computational horsepower. With Spyre, clients will be able to make use of AI assistants and agents built on IBM's Granite models, bringing generative AI to the mainframe.

Following up a strong mainframe cycle

Each time IBM launches a new mainframe system, sales temporarily boom as clients upgrade from older models. The z16, which is nearly three years old at this point, delivered a strong product cycle for IBM.

As of the end of the fourth quarter of 2024, the z16 was the most successful mainframe cycle in company history. In terms of MIPS, a metric IBM uses to measure a mainframe system's processing power, the z16 install base increased by about 30% over its predecessor.

The z17 launches in June, so IBM will see a meaningful increase in mainframe revenue during the second half of the year. In the third quarter of 2022, the first full quarter of z16 availability, mainframe revenue soared 88% year over year. IBM doesn't break out mainframe revenue directly, but hybrid infrastructure, which includes mainframes and other hardware products, generated revenue of $8.9 billion in 2024.

Beyond an increase in hardware sales, the new mainframe can drive software and consulting sales, particularly related to AI. IBM has booked more than $5 billion worth of generative AI-related business so far, and the bulk of that came from consulting signings. As mainframe clients upgrade to the AI-enabled z17, other parts of IBM could get a boost.

The new mainframe is one reason IBM was able to guide for revenue growth of more than 5% this year, an acceleration, compared to 2024. Achieving that outlook could prove challenging, considering the recent U.S. tariffs and the potential for a broad economic slowdown. However, IBM's mainframes are mission-critical systems, and the z17 delivers AI capabilities that are likely to be in demand from its clients.

With the z17, IBM continues to evolve the mainframe and maintain its relevance. With a focus on AI, the z17 should drive another strong mainframe cycle for IBM.

Should you invest $1,000 in International Business Machines right now?

Before you buy stock in International Business Machines, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and International Business Machines wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $578,035!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 5, 2025

Timothy Green has positions in International Business Machines. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Solana (SOL) Price Underwhelms, Experts Believe Cardano (ADA) and Mutuum Finance (MUTM) Are Set To SkyrocketThe crypto market suffers from jitters which have forced Solana (SOL) to decline 15% resulting in its current price of $131. Whales sold $26 million worth of SOL tokens while founder Anatoly Yakovenko failed to improve the situation through his comparisons of U.S. bonds to the MicroStrategy financial problems.
Author  Cryptopolitan
11 hours ago
The crypto market suffers from jitters which have forced Solana (SOL) to decline 15% resulting in its current price of $131. Whales sold $26 million worth of SOL tokens while founder Anatoly Yakovenko failed to improve the situation through his comparisons of U.S. bonds to the MicroStrategy financial problems.
placeholder
Trump joins Japan trade talks in surprise move, claims ‘big progress’ on tariff disputePresident Donald Trump entered the early stage of tariff negotiations with Japan on Wednesday, escalating what could have been a preparatory discussion into a diplomatic negotiation procedure.
Author  Cryptopolitan
11 hours ago
President Donald Trump entered the early stage of tariff negotiations with Japan on Wednesday, escalating what could have been a preparatory discussion into a diplomatic negotiation procedure.
placeholder
EUR/GBP trades in the red below 0.8600 mark ahead of ECB rate decisionThe EUR/GBP cross struggles to capitalize on the previous day's goodish rebound from the 0.8525-0.8520 area or a fresh weekly low and attracts some intraday sellers on Thursday.
Author  FXStreet
12 hours ago
The EUR/GBP cross struggles to capitalize on the previous day's goodish rebound from the 0.8525-0.8520 area or a fresh weekly low and attracts some intraday sellers on Thursday.
placeholder
Whales withdraw 14,929 BTC from Babylon LabsBabylon Labs saw an outflow of non-custodial staking, with 14,929 BTC sent to external addresses.
Author  Cryptopolitan
12 hours ago
Babylon Labs saw an outflow of non-custodial staking, with 14,929 BTC sent to external addresses.
placeholder
U.S.-Japan Talks Avoid Yen Exchange Rate, BOJ Likely to Cut Growth Forecasts Amid Uncertain Rate Hike ProspectsThe United States and Japan have begun negotiations on tariff-related issues, with statements from President Donald Trump and the Japanese delegation causing fluctuations in the yen exchange rate.
Author  TradingKey
12 hours ago
The United States and Japan have begun negotiations on tariff-related issues, with statements from President Donald Trump and the Japanese delegation causing fluctuations in the yen exchange rate.
goTop
quote