IBM US S&P 500DJIARussell 1000 Earnings call · transcribed from the recording
IBM (IBM) · Q3 2026 results and valuation
Share price: $248.22 · 2026-11-11
IBM provides hybrid cloud and artificial intelligence software, consulting services, and infrastructure solutions. The company serves clients globally by helping them modernize applications and manage data. It operates in the technology, consulting, and infrastructure markets. Source: 10-K annual report (2026-02-24)
Results Q3 2026 vs Q2 2026 · previous quarter · published 21 Oct 2026 and 22 Jul 2026
Net income up 1.2% on the previous quarter. Management sounded very upbeat, though noticeably less so answering analysts.
1 · Numbers
+1.2%
Net income vs Q2 2026
Outlook given
Net income 2.19B vs 2.17B
Revenue −0.3%
Why Against the same quarter last year (+25.6%), net income rose mainly because of acceleration across segments, including 9% software growth, 5% infrastructure growth, and modest consulting improvement, alongside expanded segment profit margins in software and infrastructure driven by productivity actions.
2 · How management spoke
Very upbeat
More upbeat than 96% of company calls
Answers to analysts: upbeat, but clearly less so than the script.
Last call it was different: the answers were more upbeat than the script.
3 · What stood out
AI comprised 30% of IBM consulting revenue and 35% of the backlog as it became embedded in client transformations.
Valuation
Is IBM undervalued?
Reverse DCF. Free cash flow from the last full fiscal year (2025-12-31), grown for 10 years, discounted back, plus a terminal value. “Implied growth” is the rate the current price assumes.
At 3.7% growth a year (3-year revenue growth), the model's fair value is $52.31 a share — the stock trades 375% above it. Today's price assumes 20.8% growth a year.
Current price
$248.22
close of 2026-11-11
Market implies growth of iThe yearly free-cash-flow growth, for the next 10 years, that today’s share price already assumes. If you believe the company grows faster than this, the stock is cheap under this model; slower, and it is expensive.
+20.8% for 10 yrs
Fair value / share
$52.31
Buy below
$39.23
Price vs fair value
Overvalued >200%
Price vs buy-below price
Overvalued >200%
Management expects
Growth +7.5% · from the Q3 2026 report: “IBM revised its full-year software growth guidance to approximately 7% to 8%, with 7% as the revised base case.”
A guidance figure for growth, usually one year ahead, not a 10-year free-cash-flow rate.
Read between the lines
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Figure
AI is increasingly embedded in broader transformations IBM's clients are undertaking, representing about 30% of its consulting revenue in the quarter and 35% of its backlog.
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Figure
Management stated that booking growth currently translates into good revenue growth going forward, although they declined to comment specifically on 27 growth.
Source quote
“Right now, we don't really want to comment on 27 growth, but generally speaking, I can say when we get these kinds of booking growth, it crosses into good revenue growth going forward.”
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Figure
IBM Z offers a 2 to 15 times total cost of ownership advantage over off-platform alternatives to capture value as AI workloads grow.
Source quote
“As infrastructure costs rise, IBM Z delivers a 2 to 15 times total cost of ownership advantage versus off-platform alternatives, positioning us to capture additional value as AI workloads grow.”
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Figure
The LLMD open source project helps clients run large AI models at 5 to 10 times lower cost by making more efficient use of existing GPU infrastructure.
Source quote
“LLMD, an open source project developed with Red Hat and Google, reuses previously processed context, helping clients run large AI models at 5 to 10 times lower cost by making more efficient use of existing GPU infrastructure.”
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Figure
Workloads costing approximately $100 to run on IBM could cost up to $10 million on slower competitive modalities.
3 more
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Guidance
IBM raised its full-year free cash flow growth expectation to more than $1 billion.
Source quote
“Over the last four years, our cash is up roughly $7 billion of growth in 700 basis points of free cash flow margin on that 1,000 basis points of operating leverage.”
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Guidance
IBM revised its full-year software growth guidance to approximately 7% to 8%, with 7% as the revised base case.
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Figure
IBM reported $32 billion of revenue for the quarter, a figure the company stated it feels comfortable with.
Source quote
“We feel comfortable with that $32 billion of revenue.”
Tone
How upbeat the language was, compared with other companiesiTone counts positive minus negative finance words, adjusted for length. Executives mostly speak positively, so the labels compare each call with every company's latest call: “typical” is the middle third, “very upbeat” the top tenth, “cautious” the bottom tenth.. Dot: Q3 2026. Ring: Q2 2026.
Management sounded noticeably less positive answering analysts than in its prepared script — a bigger drop than in 94% of calls. Scripts are polished in advance; a drop under questioning often marks the topics analysts pressed on, so the answers deserve a closer read than the script.
Sentences that drove the tone
“In the third quarter, we delivered solid results with 6% revenue growth, 70 basis points of operating pre-tax margin expansion, and 11% diluted operating earnings per share growth.”
“This performance reflects acceleration across our segments, led by software growth of 9%, infrastructure growth of 5%, and modest improvement in consulting.”
“You know, when you look at the health of our software business that accelerated four points quarter to quarter, it was a function of both the high-value recurring revenue, and...”
Full figures
USD · SEC EDGAR XBRL (10-Q, period end 2026-09-30)
| Metric | Q3 2026period end 2026-09-30 | Q2 2026period end 2026-06-30 | Change | Q3 2025 | YoY |
|---|---|---|---|---|---|
| Revenue | 17.10B | 17.16B | −0.3% | 16.33B | +4.7% |
| Gross profit | 9.71B | 9.91B | −1.9% | 9.36B | +3.8% |
| Operating income | 2.50B | 2.48B | +0.7% | 2.43B | +2.8% |
| Net income | 2.19B | 2.17B | +1.2% | 1.74B | +25.6% |
| EPS | 2.30 | 2.27 | +1.3% | 1.84 | +25.0% |
| P/E today 20.9 | 18.7 | 24.9 | −6.2 | 33.7 | −15.0 |
Topics
Most discussed now
- Reinforcing its conviction that IBM remains in the early stages of a long-term application modernization cycle.
- Three of IBM's four software subsegments grew revenue double...
- Lightwell was recently made generally available, and IBM has strong early demand with a pipeline that is already approaching $700...
- On top of IBM builds a moat and it builds a software distributed business model that captures that very attractive...
- Really important capability, and you saw that growth pulled through.
Faded since Q2 2026
- Fading Software is nearly 45% of IBM's total revenue and has been repositioned to higher growth end markets across hybrid cloud,...
- Dropped IBM's guidance range, 4% to 5% should be noted right upfront.
- Dropped It gives it incumbency, it gives it a footprint, and IBM can go back in there in the next quarter...
- Fading This creates a multibillion dollar TAM for IBM and Red Hat to help clients secure their open source software through...
Latest announcements
Official filings, newest first. Summaries are generated from each filing and its attachment; every figure is checked against the source.
- Results of operations · SEC 8-K
IBM reported third-quarter revenue of $17.1 billion, up 5 percent from the previous year, with free cash flow of $3.0 billion, which increased by $0.7 billion year-over-year.
- Director or officer change; Articles or bylaws amended · SEC 8-K
IBM elected Frank Baker to its Board of Directors and amended its bylaws to increase the number of directors to fourteen, effective October 1, 2026.
- Current report · SEC 8-K · routine
- Results of operations · SEC 8-K
IBM reported second-quarter revenue of $17.2 billion, down 1% year-over-year, and expects full-year free cash flow to increase by approximately $1 billion compared to the previous year.
- Results of operations; Regulation FD disclosure · SEC 8-K
IBM reported second-quarter 2026 revenue of $17.2 billion, up 1 percent year over year, with software revenue increasing by 5 percent and infrastructure revenue decreasing by 7 percent.
- Material agreement; New financial obligation · SEC 8-K
IBM extended the maturity of its $2.5 billion Three-Year Credit Agreement to June 20, 2029, and its $7.5 billion Five-Year Credit Agreement to June 22, 2031.
- Regulation FD disclosure · SEC 8-K
IBM plans to invest more than $10 billion over the next 5 years to advance its quantum leadership and aims to deliver the first large-scale fault-tolerant quantum computer by 2029.
- Director or officer change; Articles or bylaws amended; Shareholder vote results · SEC 8-K
IBM stockholders approved the 2026 Long-Term Performance Plan and amended the bylaws to reduce the number of directors to thirteen effective April 28, 2026.
Catalyst calendar
management-stated targets — from the latest earnings call; plans, not promises.
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December 10th
Quantum Day
Source quote
“We look forward to talking more about our progress at our Quantum Day on December 10th.”
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2026
revenue growth
Source quote
“Our results reinforce our confidence in delivering revenue growth for 2026 in a range of 4-5% and enable us to raise our year-over-year free cash flow growth expectation to more than a billion dollars.”
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2026
revenue growth
Source quote
“We continue to expect revenue growth for 2026 in the range of 4 to 5%,”
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full-year
free cash flow growth
Source quote
“For the full year, we are raising our expectation for free cash flow growth to more than $1 billion.”
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full-year
software growth
Source quote
“We now expect full-year software growth of approximately 7% to 8%, with about 7% as the revised base case.”