IBM reported faster third-quarter growth as software demand strengthened and cash generation improved. The company also raised its full-year free-cash-flow outlook after releasing results on October 21, 2026, for the quarter ended September 30.

Software and cash flow lead IBM’s quarter

IBM generated $9.7 billion in GAAP gross profit, up 4%, while GAAP net income from continuing operations climbed 26% to $2.2 billion. Diluted earnings per share rose 26% to $2.31. The GAAP gross margin eased 50 basis points to 56.8%, although operating pretax margin expanded 70 basis points to 19.3% on a non-GAAP basis.

Software remained the largest segment at $7.8 billion in revenue. Data revenue rose 19%, Red Hat grew 11% and transaction processing gained 9%, partly offset by a 3% decline in automation. Infrastructure revenue reached $3.7 billion, with distributed infrastructure up 31% while IBM Z declined 20%.

Bar chart showing IBM Q3 2026 revenue growth of 8% in Software, 0% in Consulting and 4% in Infrastructure
IBM Q3 2026 segment revenue growth, year over year. Source: IBM.

The software-led result adds another data point to the market’s focus on enterprise AI spending. Fusion Market News has also covered Supermicro’s higher AI-driven revenue estimate, Forrester’s AI-agent forecast and Tesla’s latest technology investment cycle.

IBM raises its cash-flow outlook

IBM kept its full-year constant-currency revenue-growth forecast at 4% to 5% but now expects free cash flow to increase by more than $1 billion from 2025. Year-to-date operating cash flow reached $11.8 billion and free cash flow totaled $7.8 billion. The company ended September with $11.1 billion in cash, restricted cash and marketable securities after investing $11.4 billion in acquisitions during 2026.

Chief Executive Arvind Krishna said clients are deploying the company’s technology across broader operating models. Investors will now watch whether the software momentum and productivity gains can offset softer areas such as automation and IBM Z. Figures come from IBM’s October 21 earnings release.

Elsy Kanana is a financial and cryptocurrency journalist at FusionMarketNews, covering digital assets, blockchain technology, financial markets, and emerging fintech trends. Her reporting focuses on market movements, regulatory developments, and on-chain analytics, delivering clear, data-driven insights to readers worldwide.