International Business Machines (IBM) announced the $6.4 billion acquisition of HashiCorp in an effort to strengthen its cloud-based software offerings in response to the growing demand for AI-powered solutions. With its consulting division facing challenges from cautious enterprise spending amid increased interest rates, IBM’s ambition to capitalise on the growing AI sector is further demonstrated by this strategic initiative.

The acquisition will see IBM pay $35 per share for HashiCorp, representing a significant 42.6% premium to Monday’s closing price. Following media reports of the deal talks, HashiCorp’s shares surged on Tuesday and continued to rise by over 4% in extended trading on Wednesday, while IBM’s shares experienced a 7% decline after the company reported first-quarter revenue slightly below estimates.

Despite challenges in the consulting segment, IBM’s software business demonstrated resilience, growing by 5.5% in the first quarter. The company’s focus on strengthening its cloud business aligns with the growing need to store and process vast amounts of data for AI applications. Notably, IBM’s “AI book of business” surpassed $1 billion in the first quarter, indicating significant growth momentum in this key segment.

The acquisition of HashiCorp, known for its cloud infrastructure management solutions, will be financed using cash reserves and is expected to enhance IBM’s adjusted core profit within the first full year of closing, anticipated by the end of 2024. Commenting on the acquisition, Stephen Elliot, a vice president at International Data Corp, emphasized its strategic value, noting that IBM is acquiring a leader in the field, which complements its existing portfolio.

As IBM continues to leverage AI-driven innovations to drive growth, its recent performance, with adjusted earnings of $1.68 per share for the quarter ended March, exceeds analysts’ expectations, showcasing the company’s resilience and adaptability in navigating evolving market dynamics.

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