IBM Beats Q3 Revenue and Profit Estimates as Full-Year Free Cash Flow Forecast Rises

IBM reported third-quarter revenue of $17.10B, up about 5% year-over-year and ahead of the $16.82B LSEG consensus estimate, while adjusted earnings of $2.95 per share beat the $2.86 expected. Net income increased to $2.19B, or $2.30 per share, up from $1.74B, or $1.84 per share, a year earlier. The company raised its full-year free cash flow forecast to an increase of more than $1B, up from its July projection of an approximately $1B bump, while maintaining its 2026 constant-currency revenue growth outlook between 4% and 5%. Software revenue grew 8% to $7.80B, beating the $7.66B StreetAccount consensus, and infrastructure revenue rose 4% to $3.70B, topping the $3.57B estimate. However, overall adjusted gross margin came in at 58.5%, narrower than the 59.1% consensus. Consulting revenue remained flat at $5.34B, slightly below the $5.37B consensus, with the unit's gross margin narrowing to 27.4% from 28.9% in the second quarter. Finance chief Jim Kavanaugh said AI represented about 30% of Q3 consulting revenue and 35% of its backlog, noting the company reinvested productivity gains into digital assets to shift toward a "services as software" model. During the quarter, IBM also agreed to buy Boeing and General Motors' HRL Laboratories for an undisclosed sum. "Our clients are now deploying 'Super Intelligence' in ways that transform entire operating models, instead of simply addressing narrow or novel problems." — Arvind Krishna, CEO of IBM.