IBM (IBM) Q3 2025 Earnings Call — October 22, 2025

Date: October 22, 2025 | Source: IBM Investor Relations (IBM Releases Third-Quarter Results) + CNBC Q3 2025 earnings report

Participants:Arvind Krishna (Chairman & CEO), James J. Kavanaugh (SVP & CFO), Olympia McNerney (VP of Investor Relations).

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Arvind Krishna, Chairman and CEO: Our third-quarter results demonstrate the continued strength of our diversified business and the progress we are making in the enterprise adoption of AI. Our AI book of business now stands at more than $9.5 billion, up from $7.5 billion in the second quarter, with both consulting and software seeing strong momentum. The move to hybrid cloud and AI is structural, and IBM is positioned to capitalize on it with our software-led model.

Software revenue grew 10 percent in the quarter, up 9 percent at constant currency, driven by strength across our recurring revenue base and continued double-digit growth in automation. Consulting revenue grew 3 percent, up 2 percent at constant currency, as clients continue to prioritize AI-enabled transformation and cost efficiency. Infrastructure delivered another strong quarter as clients continue to invest in Z17 and mission-critical, AI-enabled computing.

We remain confident in our full-year model of accelerating revenue growth and continued operating leverage.

James Kavanaugh, SVP and CFO: In the third quarter we delivered revenue of $16.3 billion, up 9 percent, up 7 percent at constant currency. Software revenue was $7.21 billion, up 10 percent, up 9 percent at constant currency — led by strong growth in automation, which was up 22 percent, and continued momentum in data, driven by our AI portfolio. Consulting revenue was $5.3 billion, up 3 percent, up 2 percent at constant currency. Infrastructure revenue grew 15 percent, reflecting continued strength in IBM Z as the Z17 cycle ramps, and we delivered double-digit operating earnings per share growth.

We delivered $3.2 billion of free cash flow in the quarter and remain on track for our full-year target. Our productivity initiatives continued to drive margin expansion, with operating pretax margin up and adjusted EBITDA up double digits year over year, even as we absorb HashiCorp dilution.

Our software portfolio remains the engine of IBM's growth and profitability — software is now roughly 45 percent of revenue, with annual recurring revenue of more than $23 billion growing at a high single-digit rate.

We are comfortable with our full-year 2025 model of accelerating revenue growth of 5 percent plus, and we continue to expect robust free cash flow for the year. The IBM Z and hybrid cloud flywheel continues to play out, and GenAI is now deeply embedded across software, consulting and infrastructure.

Questions & Answers

Q (Software growth): Software accelerated to double-digit growth. What is driving the acceleration, and how sustainable is it into Q4 and 2026?

A (James Kavanaugh): Growth was led by automation, up 22 percent, on the back of continued momentum in our AI portfolio, our recurring revenue base now over $23 billion, and M&A synergies, including HashiCorp. We continue to see software growing double digits for the full year and expect the same trajectory as we head into 2026.

Q (AI book of business): The AI book of business crossed $9.5 billion. Can you break down software versus consulting and how much is incremental?

A (Arvind Krishna): The AI book of business is more than $9.5 billion, with consulting well over $1.5 billion and software approaching $2 billion. AI is incremental across the stack — infrastructure and enabling software are purely additive, and in consulting clients are directing dollars toward AI-enabled transformation. We are seeing an increasing share of our signings tied to GenAI.

Q (Guidance / stock): The stock fell after the print despite the revenue beat. Why did you not raise full-year guidance?

A (James Kavanaugh): We are operating in a dynamic environment and remain prudent. We are comfortable with full-year revenue accelerating to 5 percent plus, with strong software growth, continued Z momentum, and robust free cash flow. We are confident in the model and in our ability to execute in the fourth quarter.