IBM Q3 Earnings Beat as Software Deals Return and Shares Jump Nearly 10% After Hours

IBM reported stronger-than-expected third-quarter results after the closing bell on Wednesday, October 21, posting adjusted earnings per share of $2.95 against the $2.86 consensus estimate and revenue of $17.10 billion against the $16.83 billion forecast, a year-over-year sales increase of roughly 5%. Shares surged nearly 10% in after-hours trading on the results.

The headline development behind the beat was a recovery in software and infrastructure deals that had slipped in the second quarter. CFO James Kavanaugh said those delayed contracts were beginning to close, and IBM lifted its full-year software revenue growth forecast to 7%-8% from the prior range of 6%-8%. Software revenue in the quarter reached $7.80 billion, up 8% year over year and above the $7.64 billion estimate, with the Data subcategory rising 19% and Hybrid Cloud including Red Hat growing 11%.

Consulting revenue of $5.34 billion came in just below the $5.39 billion estimate, finishing essentially flat year over year. Infrastructure revenue of $3.70 billion rose 4%, helped by a sharp rebound in Distributed Infrastructure, which surged 31%. IBM Z mainframe revenue fell 20%, a notable improvement from the 42% decline recorded in the prior quarter. Free cash flow of $3.03 billion exceeded estimates of $2.63 billion, and IBM said it now expects full-year free cash flow to increase by more than $1 billion year over year. The company ended the quarter with $11.1 billion in cash and marketable securities against $63.8 billion in debt.

CEO Arvind Krishna said clients are deploying what IBM calls Super Intelligence to transform entire operating models rather than addressing narrow problems, framing AI demand as a meaningful tailwind. IBM maintained its full-year constant-currency revenue growth guidance of 4%-5%.