IBM has just strengthened this critical business

International business machines‘ (NYSE: IBM) The strategy focuses on hybrid cloud computing and artificial intelligence (AI). In the cloud computing market, IBM acquisition from Red Hat forms the foundation of its hybrid cloud platform. For large enterprises and organizations looking to modernize their infrastructure and applications, with the goal of saving money, removing the burden of legacy technology or deploying new technologies such as AI, IBM’s hybrid cloud platform offers a way forward

IBM’s strategy in AI is similar. The company launched its watsonx AI platform last year, providing enterprise customers with a platform to develop, train, deploy and manage AI models and agents. Since that launch, IBM has booked about $3 billion in AI-related business and is now adding more than $1 billion of new business each quarter.

While these software platforms are at the heart of IBM’s global strategy, it’s the consulting business that’s ultimately doing a lot of the work. Large organizations need not only software, but also guidance, solutions, implementation and other services as they go through complex and lengthy modernization efforts. A company with on-premises servers running legacy applications needs a lot of help moving to a hybrid cloud architecture and deploying new AI workloads.

Remember that $3 billion AI-related business? About 80% of this total was consulting bookings, with the rest coming from software. IBM’s consulting business is a key differentiator for the company as it pursues the hybrid cloud computing and enterprise AI markets.

An important aspect of IBM’s consulting business is that it is free to build solutions for clients that include non-IBM products and services. Through a wide range of partnerships, IBM’s consulting arm creates solutions involving competing cloud platforms such as Amazon (NASDAQ:AWZN) Web Services (AWS) i Microsoft (NASDAQ:MSFT) Azure and competing software from companies like Oracle. This agnosticism is one of the reasons IBM’s consulting business works.

On Thursday, IBM announced plans to acquire Applications Software Technology, a global consultancy from Oracle. IBM competes with Oracle in several areas, but the company also recognizes that armies of potential customers currently use Oracle software. By serving these customers and their Oracle-related needs, IBM can attract new customers and potentially sell them additional products and services in the future.

Because much of Oracle’s software is mission-critical, a customer going through a modernization effort is likely to stay with Oracle’s software. With this acquisition, IBM expands its capacity to serve these customers.

IBM’s growing collection of strategic partnerships, such as the partnership with Oracle, is bringing in billions of dollars in business that otherwise IBM would not win. In the cloud computing market, these partnerships are especially important. Although IBM has its own public cloud platform, a potential customer will most likely want to use AWS, Azure, or some combination of the two. By creating solutions that involve technology that customers want or need, IBM opens the door to much more business than it would otherwise win.

Although IBM stock is trading near its all-time high, the company is doing well as its platform and consulting strategies are paying off. The company expects to generate more than $12 billion in free cash flow this year, and that number has the potential to grow even more in the coming years. Based on this forecast, IBM stock trades for about 17 times free cash flow.

This acquisition of Oracle Consulting may not be a major development, but it is another step that drives the company’s consulting strategy. As companies race to modernize, IBM is increasing its appeal as a partner of choice.

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

IBM has just strengthened this critical business was originally published by The Motley Fool

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