Kyndryl shares surge 30% on hyperscaler-related revenue growth

Shares of Kyndryl Holdings Inc. jumped 30% today after it reported better-than-expected earnings for the second quarter of its 2027 fiscal year.

Kyndryl generated $3.9 billion in sales during the three months ended Sept. 30. That represents a 1.9% decrease from a year earlier, but the company still managed to top the consensus estimate by about $50 million. It attributed the top-line surprise to its Kyndryl Consult business.

Kyndryl, a former IBM Corp. unit, once generated nearly all its revenue from managing other companies’ technology infrastructure. In 2022, it launched Kyndryl Consult to take on more strategic, higher-margin professional services deals.

The unit’s revenue grew 4.2% year-over-year in the second quarter. Kyndryl didn’t share a specific quarterly revenue number, but divulged that the unit earned a total of $3.6 billion over the past 12 months.

Kyndryl Consult’s signings, a measure of future revenue, jumped 19% over the past year. That momentum may have contributed to the company’s stock rally today.

Many of the projects that Kyndryl Consult takes on involve artificial intelligence. The unit can help customers build AI agent ensembles and set up training data generation pipelines. Additionally, it can advise clients about business decisions such as how they should allocate their AI budgets.

Kyndryl offers a software platform called Bridge to companies that buy its AI services. It enables AI agents to access business data from an organization’s internal systems. Additionally, Bridge monitors those agents to ensure they adhere to safety requirements. 

The public cloud is another major focus of Kyndryl’s growth efforts. The company’s hyperscale-related revenue topped $500 million in the second quarter, which amounts to a 27% year-over-year increase.

“Strong signings and continued growth in Kyndryl Consult and hyperscaler-related revenue reinforce our confidence in our fiscal 2027 outlook,” said Kyndryl Chief Executive Officer Martin Schroeter. “Our performance reflects demand for Kyndryl’s AI-led modernization capabilities and deep mission-critical expertise that help customers evolve their complex technology environments, strengthen cybersecurity and achieve measurable business outcomes.”

The company delivered an adjusted net income of $92 million, which breaks down to 42 cents per share. Analysts expected 41 cents per share. The sum excludes a $38 million workforce reduction charge the company took in the second quarter. It’s part of a broader cost-cutting initiative that is set to save up to $500 million annually starting from Kyndryl’s 2028 fiscal year.

For the current fiscal year, the company is forecasting an adjusted pretax income of $600 million to $700 million. Kyndryl expects its revenue to be flat or increase by up to 2%.

Image: Kyndryl