International Business Machines Corporation

IBM reported third-quarter 2026 revenue growth of 6% at constant currency, with software up 9%, infrastructure up 5%, and consulting up 2%. Diluted operating EPS grew 11%, operating pre-tax margin expanded 70 basis points, and adjusted EBITDA margin also expanded 60 basis points. For the first nine months, IBM generated about $8 billion of free cash flow, up 8% year over year, and management said free cash flow margin was the highest in reported history. On the balance sheet, IBM ended the quarter with $11.1 billion of cash and $63.8 billion of debt, including $12.7 billion for the financing business. For the full year, IBM continues to expect revenue growth of 4%-5%, now expects software growth of approximately 7%-8%, transaction processing growth of flat, low double-digit infrastructure growth, low-to-mid-single-digit consulting growth, 100 basis points of operating pre-tax margin expansion, and free cash flow growth of more than $1 billion.

Arvind Krishna framed the quarter as evidence that IBM’s software-led hybrid cloud and AI strategy is working, saying the company is seeing stronger demand as customers modernize applications, unlock data, and scale AI securely. He emphasized that Red Hat, Confluent, mainframe, and automation should each benefit as enterprise AI moves from experimentation to production. His tone was upbeat and confident, but he was careful to describe some of the demand shifts as early-stage and long-term rather than a single-quarter spike.

Jim Kavanaugh highlighted 6% revenue growth, 70 basis points of operating pre-tax margin expansion, and 11% diluted operating EPS growth, along with about $8 billion of free cash flow through nine months, up about $600 million year over year. He said software revenue accelerated to 9%, supported by an $24.9 billion ARR base, while margins expanded in software by 210 basis points and in infrastructure by 120 basis points. He also noted $11.1 billion of cash, $4.8 billion returned to shareholders through dividends in the first nine months, and a $63.8 billion debt balance. On capital allocation and outlook, he said productivity actions continue to fund investment, and IBM is raising full-year free cash flow growth to more than $1 billion while maintaining 100 basis points of operating pre-tax margin expansion for the year.

Analysts focused on why software and transaction processing improved so sharply after a softer prior quarter, and management said the rebound reflected both catch-up from slipped deals and new business, with Jim Kavanaugh estimating about a quarter of the software upside came from slip deals and about three-quarters from net new business. Several questions probed whether the stronger transaction processing result changes the longer-term mainframe view; Arvind Krishna and Jim Kavanaugh said the second-quarter weakness was timing-related, not demand destruction, and Kavanaugh said IBM now sees future monetization opportunity from rising installed and shipped MIPS. Analysts also asked about sovereign AI, customer concerns around AI cost and control, and the path to IBM’s longer-term software target; management said sovereign and private deployment are becoming more important, and that open-weight models plus on-prem/private cloud architecture are increasingly attractive because they can deliver near-frontier performance at much lower token cost.