International Business Machines (IBM) reported stronger third-quarter results as delayed customer deals returned, helping the technology company increase revenue and profits. The performance offered some relief after a disappointing previous quarter, although concerns remain about whether the recovery in its software business can continue.
IBM’s revenue rose 5% year-on-year to $17.1 billion in the quarter ended September 30, 2026, beating market expectations. Net profit increased 26% to $2.2 billion, while adjusted earnings reached $2.95 per share, exceeding analysts’ estimates.
The improvement was supported by stronger software sales and a recovery in infrastructure deals, including business linked to the company’s mainframe computers. IBM also raised its full-year software revenue growth outlook, signalling greater confidence that delayed contracts are moving forward.
However, the latest results have not entirely eased investor concerns. On October 22, IBM shares fell in premarket trading after analysts questioned how much of the software growth reflected genuinely stronger demand and how much came from deals postponed from the previous quarter.
Delayed deals return to support growth
IBM’s second-quarter performance had been affected by customers delaying some mainframe hardware and associated software purchases. The delays raised concerns that businesses were changing their spending priorities, particularly as demand for artificial intelligence infrastructure increased.
Chief Financial Officer James Kavanaugh said roughly two-thirds of the delayed mainframe deals had closed during the third quarter. Most of the remaining transactions were still being pursued, suggesting that the earlier weakness was largely related to timing rather than customers abandoning IBM’s products.
The return of these deals helped improve performance across the company’s infrastructure and software businesses. IBM said it had not seen customers moving away from its mainframe platform, which remains important for large organisations in sectors such as banking and retail.
The recovery is significant for IBM as it seeks to reassure investors that its established enterprise technology business can continue growing alongside its investments in artificial intelligence and hybrid cloud services.
Software business leads revenue growth
IBM’s software segment generated revenue of $7.8 billion, an increase of around 8% from a year earlier. The performance exceeded analyst expectations and made software the company’s strongest major business segment during the quarter.
Within the segment, revenue from hybrid cloud products, including Red Hat, increased 11%. Data-related software revenue rose 19%, while transaction processing revenue grew 9%. The automation business, however, recorded a 3% decline.
The results underline IBM’s strategy of expanding its software portfolio through cloud computing, data management and enterprise technology. The company has also used acquisitions to strengthen its position in these markets.
Despite the growth, the quality of the recovery has become a point of debate. Analysts at Bank of America estimated that approximately $250 million of software growth came from deals postponed from the second quarter. This raised questions about whether the business can maintain the same pace once the delayed transactions have been completed.
Infrastructure improves, consulting remains flat
IBM’s infrastructure business recorded revenue of $3.7 billion, up 4% year-on-year. Growth was supported by a 31% increase in distributed infrastructure revenue, while its IBM Z mainframe business declined 20%, reflecting differences in product cycles and customer spending.
Consulting revenue remained broadly unchanged at $5.3 billion. The segment’s performance was relatively subdued compared with software, highlighting the uneven pace of growth across IBM’s operations.
The company reported an adjusted operating profit margin of 19.3%, up 0.7 percentage points from a year earlier. Free cash flow reached $3 billion during the quarter, an increase of $700 million, providing additional financial flexibility.
IBM raises software growth outlook
Following the stronger results, IBM raised the lower end of its full-year software revenue growth forecast. It now expects software revenue to grow by approximately 7% to 8%, compared with its previous range of 6% to 8%.
The revised outlook reflects progress in closing delayed contracts. However, the forecast also depends on how many of the remaining deals are completed, leaving some uncertainty around the pace of growth in the coming months.
IBM maintained its overall full-year revenue growth expectation of 4% to 5%. It also expects free cash flow to increase by more than $1 billion year-on-year, improving on its earlier guidance.
Chief executive Arvind Krishna has continued to position IBM around enterprise software, hybrid cloud and artificial intelligence, areas where businesses are investing to modernise operations and manage growing data requirements.
Investors remain cautious about recovery
Despite the earnings beat, the market response showed that investors are looking beyond headline revenue and profit growth. IBM shares fell around 6.5% in premarket trading on October 22 as analysts questioned whether the software rebound could be sustained.
The concern is that delayed deals may have shifted revenue between quarters rather than created additional demand. If those transactions fade in the coming months, IBM could find it harder to maintain its recent growth rate.