International Business Machines Corporation (IBM) shares rose 3.94% to $251.46 on Wednesday after the company reported higher third-quarter revenue and profit. Revenue reached $17.1 billion, a 5% increase, while net income climbed 26% to $2.2 billion. The stock added another 1.41% to $255.00 in after-hours trading, having retreated from a post-earnings spike near $270.

Software Growth Lifts Quarterly Revenue

IBM posted 6% revenue growth at constant currency, supported by gains in software and infrastructure. The software segment generated $7.8 billion, an 8% increase from the same quarter last year, making it the largest contributor to quarterly revenue and the core of IBM's push into hybrid cloud. Within that segment, Red Hat, the enterprise Linux company IBM acquired in 2019 for $34 billion to anchor that hybrid-cloud strategy, grew 11%, while data revenue rose 19%, the fastest pace among the software lines disclosed. Transaction processing sales increased 9%, while automation revenue fell 3%.

Consulting generated $5.3 billion, matching the prior-year level, although constant currency sales increased 2%. Strategy and technology consulting grew 2%, while intelligent operations revenue declined 2%.

Infrastructure revenue climbed 4% to $3.7 billion, helped by 31% growth in distributed infrastructure. IBM Z, the mainframe line whose revenue historically moves with product timing, dropped 20%, and infrastructure support sales declined 3%. Financing contributed about $200 million in revenue, down 4% from a year earlier.

Earnings Rise as Cash Flow Expands

IBM reported GAAP diluted earnings of $2.31 per share, a 26% increase. Operating earnings reached $2.95 per share, up 11%, while operating net income grew 12% to $2.8 billion.

Margins were mixed. The GAAP gross profit margin slipped 50 basis points to 56.8%, and the operating gross margin declined 20 basis points to 58.5%. In contrast, the operating pretax margin improved 70 basis points to 19.3%, with operating pretax income rising 9% to $3.3 billion as the company continued productivity efforts.

Operating cash flow totaled $4.0 billion, an increase of $900 million from a year earlier, and free cash flow reached $3.0 billion, up $700 million from the year-ago quarter. Through September, IBM generated $11.8 billion in operating cash and $7.8 billion in free cash flow — the measure of cash generated after capital spending that underpins dividends and corporate investment.

Revenue Guidance Held, Cash Flow Target Raised

IBM maintained its 2026 forecast for constant currency revenue growth between 4% and 5%, saying it expects exchange rates to have a neutral effect on annual revenue growth. Management raised its free cash flow outlook to growth exceeding $1 billion from 2025. With software carrying the quarter's growth and mainframe revenue in decline, the maintained 4%–5% band now stands as the benchmark against which the year-end results will be measured.

The company held $11.1 billion in cash, restricted cash and marketable securities at quarter-end, down $3.4 billion from the end of 2025. Total debt reached $63.8 billion after IBM invested $11.4 billion in acquisitions during 2026, extending the acquisition-led repositioning that brought Red Hat into the portfolio in 2019.

The board declared a quarterly dividend of $1.69 per common share, a payout IBM has maintained every year since 1916. Shareholders of record on November 10 will receive the payment on December 10, 2026. IBM paid $1.6 billion in third-quarter dividends while funding acquisitions and business needs.