IBM delivers strong Q3, sees 4% to 5% revenue growth in 2026

IBM delivered third quarter revenue growth of 5% as the company recovered from a rocky second quarter outing.

The company reported third quarter net income of $2.19 billion, or $2.30 a share, on revenue of $17.1 billion. Non-GAAP earnings in the third quarter were $2.95 a share, 8 cents a share ahead of Wall Street estimates.

CEO Arvind Krishna said "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."

Krishna added that the company continues to expect 2026 revenue growth of 4% to 5% with an increase of free cash flow of more than $1 billion.

By unit IBM said software revenue was up 8% with flat consulting revenue. Infrastructure revenue was up 4%.

IBM CFO James Kavanaugh said IBM is using AI inside the company to boost productivity and cash flow.

By the numbers:

• Software revenue in the third quarter was $7.8 billion, up 8%, with Red Hat and hybrid cloud up 11%. Data was up 19% and transaction processing was up 9%.
• Consulting revenue was $5.3 billion.
• Infrastructure revenue of $3.7 billion was driven by hybrid and distributed infrastructure. IBM Z revenue was down 20%.

Speaking on the third quarter earnings call, Krishna was upbeat about IBM's software business, hardware and quantum computing. Takeaways include:

• "Red Hat again grew 11 percent, with bookings growth accelerating back to the high teens. OpenShift ARR growth accelerated reinforcing our conviction that we remain in the early stages of a long-term application modernization cycle."
• Mainframe deals that slipped in the second quarter closed in the third quarter "validating our view that softness in the second quarter reflected timing rather than underlying demand," said Krishna. "Z17 continued the strongest innovation cycle in the platform's history, generating more than a billion dollars of incremental revenue over six quarters compared with prior programs."
• Krishna said the smaller IBM Z systems are also selling well and was the best selling mid-range system in nearly two decades.
• IBM's AI offering rests on four platforms: Confluent, watsonx (including Bob and Orchestrate), HashiCorp/Apptio and Red Hat. "Deploying more models or building more agents will not be enough. The advantage will belong to a company that can operate AI securely, efficiently, and sustainably across the enterprise," said Krishna. "As AI scales, clients ask two questions: What will it cost, and who controls it?"
• "This year, IBM Quantum has signed 16 enterprise engagements across industries including automotive, aerospace, telecommunications, financial services, and manufacturing," said Krishna, who added that IBM will provide more details Dec. 10 during its Quantum Day.