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IBM’s $6.4 Billion HashiCorp Purchase to Fuel Cloud Growth

On Wednesday, International Business Machines (IBM.N) announced its acquisition of HashiCorp (HCP.O) in a deal worth $6.4 billion. This move is aimed at bolstering IBM’s cloud-based software offerings to capitalize on the growing demand for AI-powered solutions.

While IBM’s consulting business faces challenges due to cautious spending by enterprises amid higher interest rates, its software division has shown resilience and growth.

Under the agreement, IBM will pay $35 per share for HashiCorp, representing a premium of 42.6% over Monday’s closing price. HashiCorp’s stock surged following media reports of the impending deal, highlighting the market’s positive reception to the acquisition.

HashiCorp’s shares rose more than 4% in extended trading on Wednesday while IBM fell 7% as the company separately reported first-quarter revenue marginally below estimates.

Total revenue of $14.46 billion compared with LSEG estimates of $14.55 billion. Consulting segment sales were flat in the quarter.

“You’re seeing clients in this uncertain macroeconomic environment. You’re seeing clients that are tightening discretionary spending,” CFO Jim Kavanaugh told Reuters.

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Accenture (ACN.N), opens new tab had cut its fiscal-year 2024 revenue forecast in March as clients curbed spending on its consulting services.

IBM’s software business grew 5.5% in the first quarter. The company has doubled down on its cloud business as it becomes increasingly necessary to store and process the vast amounts of data employed in artificial intelligence programs.

The Big Blue’s “AI book of business” crossed $1 billion in the first quarter, growing sequentially. The book comprises actual sales and bookings from various offerings.

IBM said the HashiCorp acquisition would be funded by cash on hand and would add to adjusted core profit within the first full year of closing, expected by the end of 2024.

California-based HashiCorp allows customers to establish and manage their infrastructures on the cloud.

“This is a smart deal for IBM. They’re buying a leader and it complements their existing portfolio,” Stephen Elliot, a vice president at market research firm International Data Corp, said.

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