Overview
IBM
IBM · NYSEQ3 2026Technology · Software, Consulting and Infrastructure
Since the Report − 0.6%
Revenue grew 4.7% year over year, EPS beat the estimate by 2.4%; the stock fell 5.0% in its first reaction.
- RevenueQ3
- $17.10B
- Estimate $16.87B · 1.4% Beat
- EPSAdjusted
- $2.95
- Estimate $2.88 · 2.4% Beat
Verdict
HOLDIBM beat expectations in the third quarter, with revenue of $17.10 billion topping estimates by 1.4% and adjusted EPS beating by 2.4%. The company raised its full-year free cash flow outlook; the stock first rose 4.8% after hours, then turned 5.0% lower after the call. The next thing to watch is whether faster software growth offsets the mainframe decline.
Close on Report DayOct 21
$251.46▼ 5.0%Report-Day Move
- Market Cap(Today)
- ≈ $235 B
- 1Y Return(At Report)
- − 11%
- P/E(At Today's Price · $12.31 · Trailing 12M)
- 20.3
- Net Margin(Trailing 12M)
- 16.0%
Earnings Summary
In 30 Seconds- Revenue of $17.10B beat estimates by 1.4%, and adjusted EPS of $2.95 beat by 2.4%.
- Software grew 8.3%; the company raised its annual free cash flow growth target to more than $1B.
- The stock first rose 4.8% after hours, then reversed after the call and was down 5.0% as of 6:15 p.m. ET.
The Numbers
Software Revenue
$7.80B
▲ 8.3% Year Over Year · Red Hat ▲ 11%
Adjusted Pre-Tax Margin
19.3%
▲ 0.7 Points Year Over Year
Free Cash Flow
$3.0B
▲ $0.7B Annual · $7.8B in 9 Months
Stock Reaction
▼ 5.0%
After Hours 6:15 P.m. ET · Post-Call
Quarterly Revenue ($ Billion)
16.33
Q3 25 · $16.3 B
19.69
Q4 25 · $19.7 B · QoQ + 20.5%
15.92
Q1 26 · $15.9 B · QoQ − 19.1%
17.16
Q2 26 · $17.2 B · QoQ + 7.8%
17.10
Q3 26 · $17.1 B · QoQ − 0.3% · YoY + 4.7%
- Q3 25
- Q4 25
- Q1 26
- Q2 26
- Q3 26
Q4 2026 Company Guidance
- Full-Year Revenue Growth4% – 5%4%5%
Constant Currency · Cut From Above 5% in JulyIn Line ✓
- Full-Year Free Cash Flow15.7 billion
2025 Actual 14.7 · Target Increase of More Than $1BAt Least 6.8% Annual Growth ▲
- Full-Year Software Growth7% – 8%7%8%
Prior Range 6–8%Low End Up 1 Point ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±13% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Software$7.80 BShare 45.8%▲ 8.3% YoY
- Consulting$5.34 BShare 31.3%▲ 0.2% YoY
- Infrastructure$3.71 BShare 21.8%▲ 4.2% YoY
- Financing$192 MShare 1.1%▼ 4.0% YoY
Key Metrics
Free Cash Flow
$3.00 B
▲ 30.4% YoYPress Release
Operating Cash Flow
$4.03 B
▲ 30.6% YoYPress Release
Total Debt
$63.8 B
Press Release
Software Gross Margin
82.5%
Press Release
Dividend Per Share
$1.69
Press Release
Shares are computed over the segment total: $17.0 B. Source: Press Release.
Metrics come only from the company's own filings; each one names the document it was taken from.
“Disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow. Our clients are now deploying Super Intelligence in ways that transform entire operating models, instead of simply addressing narrow or novel problems. For the full year, we continue to expect constant currency revenue growth in the range of four-to-five percent, and we now expect free cash flow to increase by more than $1 billion year-over-year.”
- Accelerating Software Growth
- Free Cash Flow Target Raised
- AI in Operating Models
Summary and Review
Summary
IBM reported third-quarter revenue of $17.10 billion. That is up 4.7% year over year and 6% at constant currency. Revenue beat the $16.87 billion market expectation by 1.4%, leaving the revenue gate in line. Adjusted earnings per share were $2.95, beating the $2.88 estimate by 2.4%, so the earnings gate is open. The company kept its full-year target of 4-5% constant-currency revenue growth. It also raised its free cash flow growth target; the guidance gate is in line. No separate revenue target was given for the fourth quarter.
The stock closed the earnings-day session at $251.46. After the release it rose to $263.43 at 4:39 p.m. ET, up 4.8%. The direction reversed during and after the call. As of 6:15 p.m. ET the price was $238.83, a drop of 5.0% from that close. The market first read a cash story, then after the call a growth story. According to reports, the selling reflected the full-year revenue target staying at 4-5% despite the beat.
The score is 60 and the verdict is hold. One of three gates is open and two are in line; the decision table gives this mix a 50-64 band. Software revenue grew 8.3% and the adjusted pre-tax margin widened 0.7 points. On the other hand, IBM Z mainframe revenue fell 20% and consulting was flat. Consulting gross margin also narrowed 1.9 points. The call raised the full-year software growth target, but no gate opened to change the score. Debt that rose with acquisitions is another caveat to watch.
Full Review
Software carries the growth.
Software revenue was $7.80 billion. That is up 8.3% year over year and 9% at constant currency. This is a clear acceleration from 5% growth in the second quarter. The segment's share of total revenue rose to 45.6% from 44.1% a year ago. Hybrid Cloud, which includes Red Hat, grew 11%. Data was the fastest-growing line at 19%. Transaction Processing returned to 9% growth after an 8% decline in the second quarter. Automation fell 3%. Software gross margin was 82.5%, 0.6 points below 83.1% a year ago. The company has spent $11.4 billion on acquisitions this year. The release does not split growth into organic and acquired parts. Software generates roughly two-thirds of total gross profit. The company raised its full-year software growth target from 6-8% to 7-8%.
The mainframe cycle is turning down.
Infrastructure revenue was $3.71 billion, up 4.2% year over year. There are two different stories inside that total. IBM Z mainframe revenue fell 20%. Last year's strong product cycle makes the comparison harder. The decline was 42% in the second quarter, so the drop is slowing. Distributed Infrastructure, covering servers and storage, grew 31%. Infrastructure Support revenue fell 3%. The segment's gross margin was 56.7%, 0.5 points below 57.2% a year ago. The mainframe is a platform sold together with transaction processing software. That is why the Z decline could spill over into software over time. Infrastructure generated $10.87 billion in nine months, up 2.7% year over year. On the call, management said the z17 cycle is running more than $1 billion ahead of the prior generation.
Consulting is standing still.
Consulting revenue was nearly unchanged at $5.34 billion, up 0.2% year over year. Growth at constant currency was 2%. Strategy and Technology grew 2%. Intelligent Operations fell 2%. The segment's gross margin dropped to 27.4%. A year ago it was 29.3%, a contraction of 1.9 points. Consulting was also flat in the second quarter. Pricing pressure on the services side is flowing straight into margins. Consulting still makes up 31% of total revenue. That is why its flat trend pulls total growth down by about two points. On the call, management said AI now makes up 35% of the consulting backlog. Nine-month consulting revenue was $15.93 billion, up 1.5% year over year.
Cash flow and margins are strengthening.
Cash from operations was $4.03 billion, up 30.6% year over year. Free cash flow was $3.0 billion, up $0.7 billion from a year earlier. Nine-month free cash flow was $7.8 billion. The adjusted pre-tax margin widened 0.7 points to 19.3%. The GAAP effective tax rate fell to 11.9% from 28.2%, which supported net income. The company paid $1.6 billion in dividends in the quarter. Total debt rose $2.6 billion year to date to $63.8 billion. Cash and marketable securities fell $3.4 billion. R&D spending also rose 14.2% to $2.38 billion. You can find how to read cash flow in our guide. The company kept its target of about 1 point of full-year pre-tax margin expansion.
Next quarter, watch two lines.
IBM's full-year target is 4-5% revenue growth at constant currency. Nine-month revenue was $50.18 billion, up 4.9% year over year. Last year's fourth quarter was the biggest of the year at $19.69 billion. The first gauge is software growth. If it stays above 8%, the mainframe decline is being offset. If it drops below 5%, the growth burden shifts back to acquisitions. The second gauge is free cash flow. The full-year target is at least $15.7 billion, and $7.8 billion came in over nine months. A fourth-quarter result below $7.9 billion would mean the target was missed. Free cash flow in the same quarter last year was $7.6 billion. For a general method, see our guide on how to read earnings day.
Looking Ahead
Strengths and Risks
6 Strengths · 6 RisksStrengths
6- Software revenue grew 8.3%, accelerating from 5% growth in the second quarter.
- Free cash flow rose $0.7 billion year over year to $3.0 billion.
- The company raised its full-year free cash flow growth target from about $1 billion to more than $1 billion.
- The adjusted pre-tax margin widened 0.7 points to 19.3%.
- Data grew 19% and Hybrid Cloud, which includes Red Hat, grew 11%.
- AI work reached 35% of the consulting backlog.
Risks
6- IBM Z mainframe revenue fell 20% year over year.
- Consulting revenue was flat and the segment's gross margin narrowed 1.9 points.
- Total debt rose $2.6 billion year to date to $63.8 billion.
- The full-year revenue target was cut in July from above 5% to a 4-5% range.
- The 11.9% GAAP effective tax rate that supported net income may not last.
- The average analyst price target sits 2% below the pre-earnings close.
What to Watch
2- The quarterly dividend of $1.69 will be paid on December 10 to holders of record on November 10.
- Fourth-quarter results and 2027 guidance are expected in late January 2027.
Upcoming Earnings
To Understand This