USBrief

We don’t bury the lede.

Back to Technology briefing Technology

IBM beats forecasts on software growth, but shares slide nearly 6%

IBM's third-quarter revenue rose 5% to $17.1 billion, topping estimates as software sales grew 8%, and the company raised its free cash flow outlook. Shares fell about 6% before Thursday's open after IBM kept its revenue forecast unchanged and its CEO said clients are questioning returns on AI spending.

By US Brief desk · Updated 2026-10-22T07:41:00-07:00

AI-assisted · US Brief desk · Sources listed below

A low glass-and-stone office building with an IBM sign behind bare trees

What happened

IBM said Wednesday that third-quarter revenue rose 5% to $17.1 billion, or 6% at constant currency. Adjusted earnings were $2.95 a share; on a standard (GAAP) basis they were $2.31. Analysts had expected about $16.82 billion in revenue and $2.86 a share, Investing.com reported. Even so, IBM shares were down about 5.7% in premarket trading Thursday after an early after-hours gain reversed.

Why it matters

IBM is a test of whether business spending on AI is turning into steady software sales, and Krishna's caution cuts against the AI optimism that lifted the Nasdaq 1.05% on Wednesday, CNBC reported.

More context

Where the growth came from: Software revenue rose 8% to $7.8 billion, speeding up from 5% growth the quarter before. Red Hat grew 11% and data products 19%, while automation fell 3%. Consulting was flat at $5.3 billion. Infrastructure rose 4% to $3.7 billion, though sales of IBM Z mainframes fell 20%. "Our clients are now deploying Super Intelligence in ways that transform entire operating models," CEO Arvind Krishna said.

The outlook: IBM kept its forecast for 4% to 5% revenue growth at constant currency this year. It now expects free cash flow to rise by more than $1 billion from last year, and Reuters reported it raised its software growth outlook as deal delays eased.

Why shares fell: The turn came on the earnings call, when CEO Arvind Krishna said corporate clients are growing concerned about whether AI spending is producing measurable returns, Investing.com reported. IBM also left its full-year revenue forecast unchanged, and its adjusted gross margin of 58.5% came in below the 59.1% analysts expected. Jefferies analyst Brent Thill still raised his price target to $280 from $270, TheFly reported.

By the numbers: $17.1 billion in quarterly revenue. $3.0 billion in free cash flow, up $0.7 billion. $11.4 billion spent on acquisitions this year. $63.8 billion in total debt. $1.69 quarterly dividend, payable Dec. 10.

5 listed sources

References listed by US Brief; a source count is not a verification score.

Editorial sourcing notes

Results are from IBM's Oct. 21 release. Analyst estimates and the premarket move are as reported by Investing.com; premarket prices can change by the open. Hero photo shows IBM's Armonk, N.Y., headquarters (file photo, 2014).

Like US Brief? You can support it with a tip.