IBM beat Wall Street expectations for the third quarter, reporting revenue of $17.10 billion, up about 5% from a year ago, and adjusted earnings of $2.95 per share against $2.86 expected. Net income rose to $2.19 billion, or $2.30 per share, from $1.74 billion a year earlier. The shares slipped in extended trading on Wednesday.
Software revenue grew 8% to $7.80 billion, topping the $7.66 billion consensus, and infrastructure rose 4% to $3.70 billion. Consulting was flat at $5.34 billion, just below estimates, with its gross margin narrowing to 27.4% from 28.9% in the second quarter. IBM said AI made up about 30% of consulting revenue and 35% of its backlog. Adjusted gross margin of 58.5% was below the 59.1% consensus.
IBM now expects full-year free cash flow to rise by more than $1 billion, up from roughly $1 billion in July, and keeps 2026 constant-currency revenue growth at 4% to 5%. The company also agreed to buy HRL Laboratories, the research lab owned by Boeing and General Motors, for an undisclosed sum. IBM stock is down about 15% this year while the S&P 500 has gained 13%.