IBM Q3 Revenue Beats Estimates; Raises Annual Free Cash Flow Outlook
IBM reported third-quarter results exceeding market expectations, driven by strong software growth, and raised its full-year free cash flow forecast by over $1 billion.
International Business Machines Corp. (IBM) released its third-quarter earnings report on October 22, showing that both revenue and profit exceeded general market expectations. Following the news, IBM shares rose 4.27% in after-hours trading to $262.23.
Total revenue for the quarter reached $17.103 billion, a 5% increase year-over-year, surpassing the analyst consensus of $16.82 billion. Growth was primarily driven by the software and infrastructure divisions. Software revenue rose 8% to $7.8 billion, with the data business growing 19%, hybrid cloud 11%, and transaction processing 9%. Infrastructure revenue increased 4% to $3.7 billion, although sales of traditional mainframes (IBM Z) fell 20%.
On profitability, non-GAAP diluted earnings per share (EPS) came in at $2.95, beating the market forecast of $2.86. While GAAP gross margin slipped slightly to 56.8%, non-GAAP pre-tax margin improved to 19.3%. GAAP net income surged 26% to $2.2 billion, largely due to a lower effective tax rate.
Cash flow performance improved significantly. Free cash flow (FCF) for the quarter was $3.0 billion, an increase of $700 million year-over-year. Cumulative FCF for the first nine months reached $7.8 billion. Based on this, IBM maintained its 2026 constant-currency revenue growth guidance of 4-5% but raised its annual free cash flow outlook, now expecting it to increase by more than $1 billion compared to the previous year.
IBM Chairman and CEO Arvind Krishna stated that customers are adopting 'Super Intelligence' to transform their entire operating models, rather than just solving narrow problems. This trend is driving continued investment and returns in areas like data and hybrid cloud.