It has been about a month since the last earnings report for IBM (IBM). Shares have added about 1.9% in that time frame, outperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is IBM due for a pullback? Well, first let's take a quick look at its most recent earnings report in order to get a better handle on the recent catalysts for International Business Machines Corporation before we dive into how investors and analysts have reacted as of late.
IBM Surpasses Q3 Earnings Estimates on Solid Revenue Growth
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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, IBM has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock has a score of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, IBM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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International Business Machines Corporation (IBM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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