What Mattered Most In IBM’s Latest Quarter?
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Shares of International Business Machines (IBM) rose 0.26% on October 22, 2026, during the session following its fiscal Q3 2026 report, while the S&P 500 fell 1.2%. Microsoft, Amazon and Oracle each fell more than 2% that day. Revenue came in just 0.7% above analysts’ estimates and earnings per share topped expectations by 2.2%. With a beat this small, the more telling changes sit further down the report.
So where did IBM’s quarter actually turn?
IBM’s Software Business Sped Back Up
The turn came in software, which generated 44.4% of IBM’s revenue in fiscal 2025, more than any other segment. Management said software revenue growth jumped four points from the second quarter to reach 9%. It also said the division led a broader pickup across IBM’s segments, with infrastructure growth rising to 5%.
Management said the biggest difference came from a single part of the software business. On the October 21 call, executives explained that transactional sales, the software IBM sells in individual deals rather than as recurring revenue, make up about 20% of the software book. These sales fell by double digits in the second quarter, taking 4 to 5 points off software growth. In the third quarter, they rose by double digits. This swing was larger than software’s four-point pickup. Management also said its automation business faced a tougher comparison.
How Much Of IBM’s Software Jump Was Catch-Up?
Management said about a quarter of the jump came from large deals that slipped out of the second quarter and closed in the third. The other three-quarters was new business. For transaction processing, its mainframe software, management said the deferred second-quarter deals landed on top of a normal third-quarter mainframe buying cycle.
For IBM as a whole, the quarter looks more like a recovery from the second quarter than a step up. Total reported revenue grew 4.7% from a year earlier, an improvement from 1.1% in the second quarter. That pace still trails the first quarter, when revenue grew 9.5%.
What Does IBM Now Expect For 2026?
Management held its forecast for 2026 revenue growth at 4% to 5% at constant currency, the same range it gave in July. The company also raised its forecast for the year’s increase in free cash flow to more than $1 billion. For the software division, management now expects full-year growth of about 7% to 8%.
Management also expects part of the quarter’s strength to fade. Transaction processing, IBM’s mainframe software, grew 10% in the quarter. Executives do not expect that double-digit pace to continue, noting that growth might moderate from the third quarter into the fourth. While Red Hat bookings grew in the high teens, and management said such bookings growth turns into good revenue growth, the company did not want to comment on 2027 growth. It said it would quantify its view in January.
IBM’s full-year 2026 software growth, measured against management’s forecast of about 7% to 8%, is the figure to watch when the company reports in January 2027.
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