ARMONK, N.Y., Jan 28, 2026, 16:21 EST
- IBM surpassed fourth-quarter revenue and profit estimates, driven by increased software demand amid enterprise AI rollouts.
- The company reported its AI “book of business” surged to $12.5 billion, even as growth at Red Hat decelerated.
- With U.S. budget battles dragging on, investors are pushing for more transparent revenue and cash-flow forecasts for 2026.
IBM topped Wall Street forecasts for fourth-quarter revenue and profit on Wednesday, driven by increased demand for software that supports building and operating artificial intelligence systems.
The numbers matter because IBM has positioned itself as a more stable bet on enterprise AI, focusing on subscription software and long-term contracts instead of chasing consumer hype. Investors have been watching closely to see if that narrative holds as clients reshape budgets and push for clear proof of returns.
Investors are also eyeing whether IBM’s acquisition-driven software growth can stay strong enough to counteract sluggish consulting and uneven spending. The company’s 2026 revenue and free cash flow forecast has become the next key pressure point.
IBM posted quarterly revenue of $19.69 billion for the period ending Dec. 31, surpassing the consensus estimate of $19.23 billion, according to LSEG. Adjusted earnings were $4.52 per share, beating forecasts of $4.32. 1
Software revenue climbed to $9.03 billion, surpassing the $8.77 billion analysts predicted, according to LSEG data. IBM has expanded its software offerings to tap into growing AI-related needs, ranging from data management to IT automation.
IBM reported an 18% rise in its Automation unit, boosted by the $6.4 billion HashiCorp deal. The Data unit saw a 22% increase. IBM highlighted its upcoming $11 billion acquisition of Confluent, aiming to strengthen its data infrastructure foothold.
IBM reported its AI “book of business”—the total value of signed AI-related deals and sales—has climbed to $12.5 billion, rising $3 billion from the previous quarter. The company continues pushing watsonx, its enterprise AI product suite, targeting clients looking to deploy models both on cloud and on-premises systems.
Red Hat, IBM’s hybrid cloud division, posted 10% growth this quarter, slipping from 14% in Q3 and 16% in Q2, per the company’s report. CFO Jim Kavanaugh told Reuters the late-2025 U.S. government shutdown shaved “a couple points” off Red Hat’s growth. Federal clients account for roughly 15% of Red Hat’s hybrid cloud bookings, he added.
The same problem could resurface. Reuters reported the federal government seems poised for another partial shutdown this week, putting IBM at risk during a crucial spending period as it aims to boost growth in its cloud software business.
IBM’s consulting unit brought in $5.35 billion in revenue, just shy of the $5.38 billion analysts expected, according to LSEG data. The firm noted that while clients are hesitant about short-term projects, they are still investing in longer-term AI initiatives.
Before the report, a StockStory earnings preview on Yahoo Finance pegged Wall Street’s expectations at $19.21 billion in revenue and adjusted EPS of $4.29. The note highlighted investor focus on whether IBM can sustain its momentum following a surprisingly strong previous quarter. 2
Certain analysts see IBM’s appeal as a defensive play in a market quick to punish firms missing AI targets. Stifel’s David Grossman called IBM’s enterprise software lineup “more defensive than most vendors,” Barron’s reported. 3
TipRanks noted that Evercore ISI analyst Amit Daryanani stuck with an Outperform rating ahead of the earnings report, highlighting cost cuts and a greater share of recurring software revenue as key drivers for 2026. Wall Street analysts are expecting quarterly EPS to climb about 9.4%. 4
On Wednesday, a market commentary site framed the report as a crucial test for IBM’s AI and hybrid cloud strategy, highlighting the Confluent acquisition and progress with watsonx. IBM also rolled out “Sovereign Core” this month, targeting firms and governments seeking stricter control over data processing and storage locations. 5
