IBM beat Wall Street estimates with Q3 earnings of $2.65 per share and revenue of $16.33 billion

IBM stock tumbled by 5% in after-hours trading on Wednesday after the company reported stronger-than-expected Q3 results but failed to convince investors that its software and AI growth could sustain the growth expectations they have for it.

In its Q3 earnings report, IBM said revenue profits surged back into positive territory, and full-year guidance improved.

The tech giant reported adjusted earnings per share of $2.65, beating the $2.45 that analysts projected. Revenue came in at $16.33 billion, topping the $16.09 billion consensus estimate, a 9% year-over-year surge from about $15 billion. Net income totaled $1.74 billion, or $1.84 per share, compared to a $330 million loss, or 36 cents per share, last year, including a $2.7 billion pension settlement charge that dragged results down.

Chief Executive Officer Arvind Krishna said clients around the world are using the company’s technology “to drive productivity in their operations and deliver real business value with AI.” He said the company’s AI business book had surpassed $9.5 billion, up from $7.5 billion in the second quarter.

Krishna raised the company’s full-year outlook, now expecting more than 5% revenue growth instead of “at least” 5%, and projected free cash flow of $14 billion, up from a $13.5 billion estimate earlier in the year.

AI drives optimism for IBM as its core business faces more pressure

IBM has leaned heavily on AI to improve efficiency and lower costs. Krishna previously told The Wall Street Journal in May that the company had replaced 200 human resources roles with automation tools.

While that helped improve margins, the earnings release showed that growth remains uneven across the company’s segments.

The software unit brought in $7.21 billion, surging by 10% from a year earlier and matching StreetAccount’s estimate. However, investors expected stronger performance given the AI narrative that the company has promoted all year.

The consulting segment generated $5.3 billion, ahead of the $5.24 billion projection, while infrastructure revenue, which includes the mainframe computing business, jumped by 17% to $3.6 billion.

The company also announced a quarterly dividend of $1.68 per share, continuing a streak that dates back to 1916. IBM generated $3.1 billion in cash from operating activities during the third quarter, up $0.2 billion year over year. Free cash flow reached $2.4 billion, rising $0.3 billion from the prior year, while $1.6 billion was returned to shareholders in dividends.

Surging cash flow and debt define the third quarter

For the first nine months of 2025, IBM reported $9.2 billion in net cash from operations, unchanged from the prior year, and $7.2 billion in free cash flow, an increase of $0.6 billion. The company ended the third quarter with $14.9 billion in cash, restricted cash, and marketable securities, up $0.1 billion from the end of 2024.

Total debt stood at $63.1 billion, including $11.3 billion in IBM Financing debt, an $8.1 billion increase since the start of the year.

For 2025, IBM expects constant-currency revenue growth of more than 5%. With current exchange rates, currency is expected to add a 1.5-point tailwind. Free cash flow is projected to remain around $14 billion for the full year.

Earlier, before the report came out, IBM’s board approved a regular quarterly dividend of $1.68 per share for shareholders of record on November 10, payable on December 10.

Chief Financial Officer James Kavanaugh said, “New innovation, the strength and diversity of our portfolio, and our disciplined execution led to acceleration in revenue growth and profit in the quarter.”

James added that IBM’s “consistent focus on the fundamentals” drove double-digit adjusted EBITDA growth and another period of strong free cash flow, providing the funds needed for continued investments and shareholder returns.

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