IBM Beats Q3 Estimates but Shares Drop on Cautious Revenue Outlook

International Business Machines (NYSE: IBM) reported stronger-than-expected third-quarter earnings, but its stock fell 4% in after-hours trading as investors reacted to a softer full-year revenue growth forecast.

The tech giant posted adjusted earnings per share of $2.65, surpassing analyst estimates of $2.44 by $0.21. Revenue rose 9% year-over-year to $16.33 billion, beating the expected $16.09 billion, or 7% at constant currency. Despite these results, IBM’s guidance of “more than 5%” full-year revenue growth signaled a potential slowdown from the current quarter’s 7% pace, tempering investor enthusiasm.

IBM’s Software segment led performance with 10% growth to $7.2 billion, while Infrastructure revenue surged 17% to $3.6 billion, driven by a 61% jump in IBM Z systems. Consulting posted modest growth of 3%, reaching $5.3 billion. The company’s AI business continues to expand, with its book of business now exceeding $9.5 billion, reflecting IBM’s strategic focus on artificial intelligence and hybrid cloud services.

CEO Arvind Krishna highlighted IBM’s ongoing momentum: “We accelerated performance across all segments and exceeded expectations in revenue, profit, and free cash flow. Clients continue to leverage our technology and expertise to drive productivity and deliver real business value with AI.”

CFO James Kavanaugh echoed the sentiment, citing strong execution and portfolio diversity as key drivers of growth. IBM also raised its free cash flow outlook to about $14 billion for the year, underscoring financial resilience.

The company’s gross profit margin improved to 58.7%, up 1.2 points year-over-year, while operating cash flow reached $3.1 billion. IBM returned $1.6 billion to shareholders through dividends, reaffirming its commitment to value creation amid evolving market dynamics.