TLDR
- IBM stock closed up about 4% at roughly $251.50 on Wednesday, a gain of $9.54.
- Q3 adjusted earnings of $2.95 a share and revenue of $17.1 billion topped estimates.
- Software revenue grew 8% to $7.8 billion, beating forecasts.
- IBM raised its free cash flow outlook to growth of more than $1 billion for the year.
- Adjusted gross margin of 58.5% came in below the 59.1% analysts expected.
IBM stock finished Wednesday up about 4% at roughly $251.50, a gain of $9.54. The move came before the company reported third-quarter results after the closing bell.
International Business Machines Corporation, IBM
Adjusted earnings came in at $2.95 a share. Analysts were looking for $2.85 to $2.86, depending on the source.
Revenue rose 4.7% from a year earlier to $17.1 billion. The Street had forecast about $16.8 billion.
That growth rate is a small step up from the second quarter. It is still well short of the 9.5% pace in the first quarter.
Net income was $2.19 billion, or $2.30 a share. A year ago it was $1.74 billion, or $1.84 a share.
Software Does the Heavy Lifting
Software was the clear winner. Revenue grew 8% to $7.8 billion, ahead of the $7.66 billion consensus.
Infrastructure revenue rose 4% to about $3.7 billion. Analysts had expected $3.57 billion.
Consulting was flat at $5.34 billion, just under the $5.37 billion forecast. Its gross margin slipped to 27.4% from 28.9% in the second quarter.
CFO Jim Kavanaugh said AI made up about 30% of consulting revenue and 35% of the backlog. He added that IBM put productivity gains back into digital assets.
The adjusted gross margin of 58.5% was the one soft spot. StreetAccount had pegged it at 59.1%.
Guidance and the July Hangover
IBM now expects full-year free cash flow to rise by more than $1 billion. The July forecast called for a gain of about $1 billion.
Revenue guidance stayed put at 4% to 5% constant-currency growth for 2026. Kavanaugh said he is comfortable with Street estimates of about $32 billion in revenue.
Investors have been wary since July 14. That day IBM pre-announced weak second-quarter results, and the stock fell 25%, its worst session on record.
About two-thirds of the delayed mainframe deals closed in the third quarter, the company said. Jefferies analyst Brent Thill called the quarter a “show-me story.”
Morgan Stanley said the results “should be viewed as neutral to positive.” The firm added that the setup after this is more challenging.
IBM stock is still down more than 13% since July 13, while the S&P 500 and Nasdaq Composite are each up more than 3%. For the year, IBM is down 15% against a 13% gain for the S&P 500.
During the quarter, IBM agreed to buy HRL Laboratories from Boeing and General Motors for an undisclosed sum. Earlier this month, it also advanced to the final phase of a federal quantum benchmarking program.
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