IBM reported third-quarter 2026 results on October 21 with revenue of $17.1 billion, up 5 percent from a year earlier and ahead of the roughly $16.82 billion analysts had modeled. Adjusted earnings came to $2.95 per share against a consensus near $2.86.
Software revenue rose 8 percent to $7.8 billion and infrastructure revenue rose 4 percent to $3.7 billion. Consulting revenue held flat at $5.3 billion, and its gross margin slipped to 27.4 percent from 28.9 percent in the second quarter. IBM attributed the margin change to the cost of building AI-related services ahead of client demand. IBM Z mainframe revenue fell 20 percent after a strong 2025 quarter, while the z17 platform generated more than $1 billion in incremental revenue. IBM said AI engagements account for roughly 30 percent of consulting revenue and 35 percent of the segment's backlog.
During the earnings call, CEO Arvind Krishna told analysts that large enterprise clients are becoming more cautious about AI spending and are examining returns more closely. He also flagged that some of that spending has not yet produced a visible return. Shares rose briefly after the report and reversed once the call began. According to 24/7 Wall St, the stock fell about 7 percent by the next session, and Accenture and Infosys shares also eased.
IBM raised its full-year free cash flow outlook to growth of more than $1 billion and left its 2026 constant-currency revenue growth guidance at 4 to 5 percent. Nine-month free cash flow reached $7.8 billion. Analysts at Oppenheimer argued the selloff overstated any deterioration in the business. IBM shares had already dropped 22 percent in a single day in July after a preliminary earnings warning.
Source: Startup Fortune - https://startupfortune.com/ibm-beat-on-revenue-and-profit-then-krishnas-own-words-sank-the-stock/