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IBM pops after hours as Q3 tops forecasts and cash outlook improves

Kalbir Talwar
Published Oct 21, 2026
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Summary:
  • IBM beat estimates with adjusted EPS of $2.95 and revenue of $17.10 billion, versus LSEG calls for $2.86 and $16.82 billion.
  • Revenue grew about 5% year over year; net income was $2.19 billion, or $2.30 per share, compared with $1.74 billion and $1.84 per share a year ago.
  • Full-year free cash flow is now seen rising by more than $1 billion, while 2026 constant-currency revenue growth is still pegged at 4% to 5%.

Results and outlook

IBM shares rose in late trading after third-quarter results cleared expectations. Adjusted earnings were $2.95 per share on $17.10 billion in revenue, ahead of LSEG's $2.86 and $16.82 billion. Sales increased about 5% from a year earlier, and net income came in at $2.19 billion, equal to $2.30 per share, versus $1.74 billion and $1.84 per share in the prior-year period. Adjusted earnings exclude acquisition-related adjustments.

Cash guidance improved. IBM now projects full-year free cash flow to climb by more than $1 billion, versus July's outlook for roughly a $1 billion increase. The company maintained its 2026 constant-currency revenue growth target of 4% to 5%. One soft spot: adjusted gross margin of 58.5% trailed the StreetAccount consensus of 59.1%.

Business mix and deals

Software led the quarter with $7.80 billion in revenue, up 8% and above the $7.66 billion StreetAccount consensus. Consulting posted $5.34 billion, flat and just under the $5.37 billion estimate. Infrastructure delivered $3.70 billion, a 4% rise and ahead of the $3.57 billion consensus.

IBM also said it agreed to acquire Boeing and General Motors' HRL Laboratories, formerly the research division of Hughes Aircraft, for an undisclosed amount.

When earnings and results can feel opaque, it's helpful to get clear context each morning, so sign up for the free Market Briefs newsletter

What leaders said and why it matters for your portfolio

"Our clients are now deploying 'Super Intelligence' in ways that transform entire operating models, instead of simply addressing narrow or novel problems," CEO Arvind Krishna said. On the call, CFO Jim Kavanaugh noted that AI-related work comprised about 30% of consulting revenue during the period, and made up 35% of IBM's backlog. Executives will review the results with analysts starting at 5 p.m. ET.

For context into sentiment, by the close on Wednesday, IBM shares were lower by 15%, whereas the S&P 500 index was higher by 13%. The bottom line: stronger software and infrastructure helped IBM beat, cash flow guidance stepped up, and the stock had been lagging into the print - useful markers if IBM touches parts of your portfolio.

Even when corporate reports are dense, staying informed keeps you calm and prepared, so try our free Market Briefs newsletter

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