IBM reported third-quarter 2026 results on Wednesday, October 21, after the close. Revenue: $17.1 billion, up 5% and up 6% at constant currency. Software and Infrastructure led, Consulting stayed flat, and the company raised its full-year free cash flow guidance to an increase of more than $1 billion.
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What was reported
| Q3 2026 | Year-over-year change | |
|---|---|---|
| Revenue | $17.1 billion | +5% (+6% at constant currency) |
| Gross profit (GAAP) | $9.7 billion | +4% |
| Gross margin (GAAP) | 56.8% | -0.5 pts |
| Gross margin (operating) | 58.5% | -0.2 pts |
| Pre-tax income (GAAP) | $2.5 billion | +3% |
| Pre-tax margin (GAAP) | 14.6% | -0.3 pts |
| Pre-tax margin (operating) | 19.3% | +0.7 pts |
| Net income (GAAP) | $2.2 billion | +26% |
| Diluted earnings per share (GAAP) | $2.31 | +26% |
| Diluted earnings per share (operating) | $2.95 | +11% |
Source: IBM's third-quarter 2026 press release, October 21, 2026, filed with the SEC on Form 8-K as Exhibit 99.1. "Operating" is a non-GAAP measure, as the company defines it in the release.
Note the gap between two lines. GAAP pre-tax income rose 3%, while GAAP net income rose 26%. So most of the increase in net income does not come from the business but from taxes. The operating measure, which the company itself places alongside GAAP, shows a more restrained picture: pre-tax income up 9% and earnings per share up 11%.
The three segments
Software - $7.8 billion, up 8% (9% at constant currency). Within the segment:
- Hybrid Cloud, meaning Red Hat: up 11%
- Data: up 19% (20% at constant currency) - the fastest-growing line in the company
- Transaction Processing: up 9% (10% at constant currency)
- Automation: down 3% - the only line that contracted within Software
Consulting - $5.3 billion, flat (up 2% at constant currency). Within it, Strategy and Technology rose 2% (4% at constant currency), and Intelligent Operations fell 2% (flat at constant currency).
Infrastructure - $3.7 billion, up 4% (5% at constant currency), with Hybrid Infrastructure up 8%.
Cash flow, and the balance sheet
In the quarter: cash flow from operating activities was $4.0 billion, up $0.9 billion versus the year-ago quarter, and free cash flow $3.0 billion, up $0.7 billion. The company returned $1.6 billion to shareholders in dividends.
Year to date: cash flow from operating activities of $11.8 billion, up $2.6 billion; and free cash flow of $7.8 billion, up $0.6 billion. So the increase in operating cash flow is far larger than the increase in free cash flow, and the gap sits on investment.
And on the balance sheet: the company invested $11.4 billion in acquisitions year to date. Cash, restricted cash and marketable securities fell to $11.1 billion, down $3.4 billion versus the end of 2025. Debt reached $63.8 billion - including $12.7 billion of the financing arm - up $2.6 billion year to date.
Guidance
- Revenue: the company continues to expect growth of 4% to 5% at constant currency for the full year. At current rates, currency is expected to be neutral to full-year growth.
- Free cash flow: the company now expects full-year free cash flow to increase by more than $1 billion versus last year. That is a raise, and it appears in the release headline.
The board approved a quarterly dividend of $1.69 per share, to stockholders of record on November 10, 2026. With the December 10 payment, the company will have paid quarterly dividends every year since 1916.
The stock
The report was published after the close on Wednesday. The last close before the report: $251.46 on Wednesday, October 21, up 3.94% from the prior close of $241.92. The trading reaction to the report falls in the after-hours session and in Thursday's session, October 22. I was not able to verify that day's close at the time of writing, so I am not reporting it - the data provider reached its daily request limit. A figure that has not been verified does not get written, and I will update it when I have it.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
Two things in this report drew my attention, and they point in opposite directions.
The first, favourably: the Data line. Growth of 19% is the fastest line in the company, and it makes sense in an environment where companies are putting models into existing systems - where the advantage is not the model but orderly access to data. Red Hat at 11% tells the same story from the infrastructure side.
The second, unfavourably: Consulting is flat. This is the segment meant to be the arm that translates the technology into client projects, and at $5.3 billion it is nearly a third of revenue. When it does not move - and Intelligent Operations within it falls 2% - that is evidence the projects are not expanding at the pace the software is.
And one line to read carefully: GAAP net income rose 26%, but pre-tax income rose 3%. That gap is made by taxes, not by the business. The company's own operating measure says 11% for earnings per share - and that is the number that describes the quarter.
What I will follow: the Consulting line, which is where the "super intelligence" the company talks about is supposed to turn into an invoice; and the $11.4 billion invested in acquisitions year to date, which took $3.4 billion out of the cash on the balance sheet and whose return we have not yet seen.
(To be clear: this is my personal opinion only. Nothing here is a recommendation to take any action, and there is no forecast here of the price of any security.)
Ilan Abramov, the author, or anyone on his behalf may hold some of the securities or funds mentioned in this article.
