IBM Q3 revenue rises 5% to $17.1 billion as software growth speeds up

IBM reported revenue of $17.1 billion for the third quarter of 2026 on Wednesday, October 21, 2026, up 5% from a year earlier and up 6% when currency swings are stripped out. The company said software and its infrastructure business led the growth, and it raised its forecast for free cash flow for the year. Its shares first rose in trading after the market closed, then turned lower during the call with analysts.

IBM is one of the oldest names in computing, but its business today looks very different from the mainframe maker many people remember. Most of its money now comes from software sold to large companies and governments, including Red Hat, the open-source software firm it bought in 2019, and tools for running applications across private data centres and public clouds. Its quarterly numbers are watched as a signal of how much big organisations are willing to spend on technology, and on artificial intelligence in particular.

The quarter showed a clear split. Software sped up: growth of 9% at constant currency is faster than the unit has managed in many recent quarters, and chief executive Arvind Krishna told analysts that bookings at Red Hat grew in the high teens in percentage terms. Consulting, where IBM sells the people who design and run technology projects, barely grew, and its gross margin, the share of revenue left after the direct cost of delivering the work, fell to about 27.4%. Market reports noted that consulting revenue was slightly below what analysts had expected.

Constant currency is a way of reporting growth as if exchange rates had not changed, so it shows how much more business a company actually did. Free cash flow is the cash a company has left after paying for its operations and investments, the money that funds dividends, buy-backs and acquisitions. IBM has made raising free cash flow a central promise to investors, which is why the higher forecast was its main message.

The share move told a second story. According to market reports, IBM shares rose more than 7% in after-hours trading as the figures came out, then fell to a loss of about 4.6% during the earnings call. Reports linked the turn to comments by Krishna that some clients are worried that parts of their AI spending are out of control with no real return. The company also kept, rather than raised, its full-year revenue forecast, which some investors had hoped would move up.

Short-term: The results give buyers of enterprise technology a reference point: software for managing hybrid cloud and automation is still growing, while large consulting projects are being signed more slowly. For IBM's share price, the reaction in the next sessions will depend on how investors weigh the strong software numbers against the flat consulting business and the unchanged revenue forecast.

Long-term: Krishna's remark about clients questioning AI spending is likely to be read across the industry. Many technology companies have told investors that AI will drive their growth; a large supplier saying customers want proof of returns suggests buyers may become more selective, favouring tools that save measurable time or money over open-ended experiments.

Who is affected: IBM shareholders, the large companies and governments that buy its software and services, Red Hat's customers, and the thousands of IBM consulting staff whose work depends on new project signings. Technology workers and service firms that compete with IBM's consulting arm will also watch whether flat demand continues.

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