IBM beat Wall Street’s third-quarter forecasts on the back of its software business and raised its cash flow target for the year, yet its stock remains down double digits in 2026. The company reported the results Wednesday in a filing with the Securities and Exchange Commission.
Revenue rose 5% to $17.1 billion, a bit above the roughly $16.8 billion analysts expected. Adjusted earnings came to $2.95 a share, ahead of the $2.85 or so that analysts had penciled in. Net income climbed 26% to $2.19 billion.
Where the growth came from
Software did the heavy lifting. Revenue in that division grew 8% to $7.8 billion, helped by Red Hat and hybrid cloud, which rose 11%, data products, which jumped 19%, and transaction processing, which gained 9%. Infrastructure sales climbed 4% to $3.7 billion. Consulting brought in $5.3 billion and stayed flat.
Chief executive Arvind Krishna said clients are now using what he called “super intelligence” to change how entire parts of their operations run, instead of solving narrow problems. IBM’s chief financial officer, James Kavanaugh, said the company is also using AI inside IBM to improve productivity and cash flow.
Cash and the outlook
IBM generated $3 billion in free cash flow in the quarter, up about $700 million from a year earlier, and $7.8 billion over the first nine months. It now expects free cash flow to grow by more than $1 billion this year. It left its revenue guidance alone, still expecting 4% to 5% growth at constant currency.
The company ended the quarter with $11.1 billion in cash and marketable securities, down $3.4 billion from the end of 2025, partly because of acquisitions and dividends.
The stock tells a different story
IBM shares rose about 3% in after-hours trading, but they are still down roughly 15% to 17% for the year, according to differing reports. That shows a strong quarter does not always lift a stock. Worries about AI spending also hit the broader market Thursday, which we covered in our report on the Nasdaq’s drop after Meta and Tesla earnings.
IBM has not changed its revenue forecast, so investors will watch the fourth quarter for signs that growth holds at that pace.
