IBM Surpasses Q3 Earnings Estimates on Solid Revenue Growth

International Business Machines Corporation IBM reported strong third-quarter 2025 results, with adjusted earnings and revenues beating the respective Zacks Consensus Estimate.

The company witnessed healthy demand trends for hybrid cloud and artificial intelligence (AI) solutions with a client-focused portfolio and broad-based growth. IBM exceeded the target metrics related to revenue, profitability and cash flow growth for the quarter. Despite economic uncertainty stemming from geopolitical issues, supply chain vulnerabilities, constrained federal spending and the evolving landscape of interest rates and inflation levels, the company expects to deliver sustainable growth through advanced technology and deep consulting expertise.

Net Income

On a GAAP basis, net income for the reported quarter was $1.74 billion or $1.84 per share against a net loss of $0.33 billion or a loss of 36 cents per share in the year-ago quarter. The significant improvement in GAAP earnings was primarily due to a $2.7 billion pension settlement charge in the year-earlier quarter.

Excluding non-recurring items, non-GAAP net income from continuing operations was $2.65 per share compared with $2.30 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 21 cents.

Quarter Details

Quarterly total revenues increased to $16.33 billion from $14.97 billion on strong demand for hybrid cloud and AI, driving growth in the Software segment. On a constant currency basis, revenues were up 7% year over year. The top line exceeded the consensus estimate of $16.1 billion. 

Gross profit increased to $9.36 billion from $8.42 billion in the prior-year quarter, resulting in respective gross margins of 57.3% and 56.3%, driven by a solid portfolio mix. Total expenses decreased to $6.93 billion from $9.22 billion despite higher research and development costs due to a pension settlement charge in the year-ago quarter.

Segmental Performance

Software: Revenues improved to $7.21 billion from $6.52 billion, driven by growth in Hybrid Cloud (up 12% year over year), Automation (22%) and Data (7%), partially offset by Transaction Processing (down 3%). The segment’s revenues fell short of our estimate of $7.35 billion, despite solid hybrid cloud traction. Segment profit was $2.37 billion compared with $1.97 billion in the year-ago quarter for margins of 32.9% and 30.2%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across automation and generative AI offerings like watsonx.

Consulting: Revenues were $5.32 billion compared with $5.15 billion a year ago, with growth in business application transformation, application modernization and migration, and application operations. The segment’s revenues beat our estimate of $5.19 billion. Segment profit increased to $686 million from $559 million for margins of 12.9% and 10.9%, respectively.

Infrastructure: Revenues were $3.56 billion compared with $3.04 billion on higher demand for hybrid and distributed infrastructure. Segment profit was $644 million compared with $422 million in the year-ago quarter, for respective margins of 18.1% and 13.9%. This reflected strength in the z17 program as AI use cases resonated strongly with clients. Higher investments in the business across areas like AI, hybrid cloud and quantum also buoyed segment performance.

Financing: Revenues improved to $200 million from $181 million a year ago. Segment profit was up to $123 million from $86 million in the year-ago quarter for respective margins of 61.6% and 47.5%.

Cash Flow & Liquidity

During the quarter, IBM generated $3.08 billion in cash from operations compared with $2.88 billion in the year-ago quarter, bringing the respective tallies for the first nine months of 2025 and 2024 to $9.15 billion and $9.11 billion. Free cash flow was $2.37 billion in the quarter, up from $2.06 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of Sept. 30, 2025, the company had $11.57 billion in cash and cash equivalents with $55.17 billion of long-term debt.

Outlook

For 2025, the company expects revenues to grow more than 5% on a constant currency basis, driven by a strong portfolio mix, operating leverage and yield from productivity initiatives. Free cash flow is expected to be in the vicinity of $14 billion.

Zacks Rank

IBM currently carries a Zacks Rank #3 (Hold). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Arista Networks Inc. ANET is scheduled to release third-quarter 2025 earnings on Nov. 5. The Zacks Consensus Estimate for earnings is pegged at 72 cents per share, suggesting a growth of 20% from the year-ago reported figure.

Arista has a long-term earnings growth expectation of 18.7%. Arista delivered an average earnings surprise of 12.8% in the last four reported quarters.

Akamai Technologies, Inc. AKAM is slated to release third-quarter 2025 earnings on Nov. 6. The Zacks Consensus Estimate for earnings is pegged at $1.64 per share, indicating a 3.1% growth from the year-ago reported figure.

Akamai has a long-term earnings growth expectation of 4.9%. Akamai delivered an average earnings surprise of 7.1% in the last four reported quarters.

Pinterest, Inc. PINS is set to release third-quarter 2025 earnings on Nov. 4. The Zacks Consensus Estimate for earnings is pegged at 42 cents per share, implying growth of 5% from the year-ago reported figure.

Pinterest has a long-term earnings growth expectation of 33.9%. Pinterest delivered an average negative earnings surprise of 1.1% in the last four reported quarters.

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This article originally published on Zacks Investment Research (zacks.com).

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