IBM Q4 Earnings Surpass Estimates on Strong Cloud and AI Momentum

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

The company’s strong quarterly performance was driven by robust software growth led by hybrid cloud and watsonx AI platform, continued momentum in Red Hat, healthy consulting demand and improved cost efficiency, supporting profitability and long-term growth. 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 $5.6 billion or $5.88 per share compared with $2.91 billion or $3.09 per share in the year-ago quarter. The significant increase in GAAP earnings was due to top-line growth and income tax benefit.

Excluding non-recurring items, non-GAAP net income from continuing operations was $4.52 per share compared with $3.92 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 19 cents.

For 2025, IBM reported net income of $10.6 billion or $11.17 per share compared with $6.02 billion or $6.43 per share in 2024. Non-GAAP net income from continuing operations was $11.59 per share compared with $10.33 in 2024.
 

International Business Machines Corporation Price, Consensus and EPS Surprise

International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote

Quarter Details

Quarterly total revenues increased to $19.69 billion from $17.55 billion on strong demand for hybrid cloud and AI, driving growth in the Software segment. On a constant currency basis, revenues were up 9% year over year. The top line exceeded the consensus estimate of $19.2 billion. For 2025, revenues increased to $67.54 billion from $62.75 billion in 2024.

Gross profit improved to $11.93 billion from $10.44 billion in the prior-year quarter, resulting in respective gross margins of 60.6% and 59.5% owing to a strong portfolio mix. Total expenses increased to $7.78 billion from $7.13 billion due to higher selling, general, and administrative expenses and research and development costs.

Segmental Performance

Software: Revenues improved to $9.03 billion from $7.92 billion, driven by growth in Hybrid Cloud (up 10%), Automation (18%), Data (22%), and Transaction Processing (8%). Segment profit was $3.4 billion compared with $3.1 billion in the year-ago quarter for margins of 37.7% and 39.2%, respectively. The company is witnessing healthy hybrid cloud adoption by clients and solid demand trends across RedHat, automation, and generative AI offerings like watsonx.

Consulting: Revenues were $5.35 billion compared with $5.17 billion a year ago, with increased demand for AI services, growth in business application transformation, application modernization and migration, and application operations. Segment profit increased to $658 million from $606 million for respective margins of 12.3% and 11.7%.

Infrastructure: Revenues were $5.13 billion compared with $4.26 billion on higher demand for hybrid and distributed infrastructure. Segment profit was $1.6 billion compared with $1.06 billion in the year-ago quarter, for respective margins of 31.2% and 25%. This reflected strength in the z17 program as AI use cases resonated strongly with clients. Increased investments in AI, hybrid cloud, and quantum technologies supported stronger segment performance.

Financing: Revenues increased to $179 million from $170 million a year ago. Segment profit was up to $150 million from $94 million in the year-ago quarter for respective margins of 83.5% and 55%.

Cash Flow & Liquidity

During the quarter, IBM generated $4.04 billion in cash from operations compared with $4.33 billion in the year-ago quarter, bringing the respective tallies for 2025 and 2024 to $13.19 billion and $13.44 billion. Free cash flow was $7.55 billion in the quarter, up from $6.16 billion in the prior-year period, driven by higher profit and working capital efficiencies. As of Dec. 31, 2025, the company had $13.59 billion in cash and cash equivalents with $54.84 billion of long-term debt compared with respective tallies of $13.95 billion and $49.88 billion a year ago.

Outlook

For 2026, 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 $15.73 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 fourth-quarter 2025 earnings on Feb. 12. The Zacks Consensus Estimate for earnings is pegged at 75 cents per share, suggesting growth of 15.38% from the year-ago reported figure.

Arista has a long-term earnings growth expectation of 20.08%. The company delivered an average earnings surprise of 10.17% in the last four reported quarters.

Lyft, Inc. LYFT is scheduled to release fourth-quarter 2025 earnings on Feb. 10. The Zacks Consensus Estimate for earnings is pegged at 32 cents per share, suggesting growth of 6.67% from the year-ago reported figure.

Lyft has a long-term earnings growth expectation of 24.41%. The company delivered an average earnings surprise of 1.17% in the last four reported quarters.

Advanced Micro Devices, Inc. AMD is set to release fourth-quarter 2025 earnings on Feb. 3. The Zacks Consensus Estimate for earnings is pegged at $1.32 per share, implying growth of 21.1% from the year-ago reported figure.

Advanced Micro Devices has a long-term earnings growth expectation of 43.26%. The company delivered an average earnings surprise of 2.45% in the last four reported quarters.

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

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