IBM reported third-quarter revenue of $17.1 billion, up 5% from a year earlier and up 6% at constant currency, with growth led by software and infrastructure. The company kept its forecast for full-year constant-currency revenue growth of 4% to 5% and raised its free cash flow outlook, saying it now expects free cash flow to increase by more than $1 billion year over year.
Diluted earnings per share from continuing operations were $2.31 on a GAAP basis, up 26%, and $2.95 on an operating (non-GAAP) basis, up 11%, according to IBM’s earnings release. Operating pre-tax margin widened 70 basis points to 19.3%, while GAAP gross margin slipped 50 basis points to 56.8%. CNBC reported that both revenue and adjusted earnings topped LSEG consensus estimates of $16.82 billion and $2.86 a share, that the adjusted gross margin of 58.5% came in below the StreetAccount consensus of 59.1%, and that IBM shares climbed in extended trading.
“Our clients are now deploying Super Intelligence in ways that transform entire operating models, instead of simply addressing narrow or novel problems,” said Arvind Krishna, IBM chairman, president and chief executive officer.
Where the growth came from
Software revenue was $7.8 billion, up 8% and up 9% at constant currency. Hybrid Cloud (Red Hat) grew 11%, Data rose 19%, Transaction Processing gained 9% and Automation fell 3%. IBM’s earnings presentation says OpenShift annual recurring revenue growth accelerated to more than 30% and puts software ARR at $24.9 billion, up 8%. The same deck counts Confluent within the Data category. WebProNews covered IBM’s Confluent deal and fourth-quarter results in January.
Infrastructure revenue rose 4% to $3.7 billion, or 5% at constant currency, though its hardware lines moved in opposite directions. Distributed Infrastructure jumped 31%, and IBM said storage delivered record revenue growth. IBM Z revenue fell 20%, even as the presentation says the z17 mainframe continues to outperform the prior generation, with more than $1 billion in incremental revenue.
Consulting revenue was flat at $5.3 billion and up 2% at constant currency, a little under the $5.37 billion StreetAccount consensus cited by CNBC. IBM said generative AI is embedded across consulting engagements that make up 35% of its consulting backlog, and that its trailing 12-month book-to-bill ratio remains above 1.0.
Cash, deals and the rest of 2026
Net cash from operating activities was $4.0 billion in the quarter, up $0.9 billion, and free cash flow was $3.0 billion, up $0.7 billion. For the first nine months, free cash flow reached $7.8 billion. CNBC reported that IBM’s free cash flow forecast in July called for an increase of approximately $1 billion, so the new target of more than $1 billion raises that forecast. IBM also said it still expects 100 basis points of operating pre-tax margin expansion for the year.
“Just as we are helping clients extract value from their operations with Super Intelligence, we are driving tangible returns through our productivity initiatives inside IBM,” said James Kavanaugh, IBM senior vice president and chief financial officer.
IBM ended the third quarter with $11.1 billion of cash, restricted cash and marketable securities, down $3.4 billion from the end of 2025, after investing $11.4 billion in acquisitions so far this year. Total debt was $63.8 billion, including $12.7 billion of IBM Financing debt. During the quarter, IBM agreed to buy HRL Laboratories from Boeing and General Motors for an undisclosed sum, CNBC reported, and IBM’s presentation says the company finalized a $1 billion CHIPS award agreement with the U.S. Department of Commerce to speed research and development for a U.S.-based quantum foundry.
The board declared a regular quarterly dividend of $1.69 per share, payable Dec. 10, 2026, to stockholders of record on Nov. 10. With that payment, IBM said it will have paid consecutive quarterly dividends every year since 1916.