IBM

IBM just reported Q3 2026 and the headline is simple. Revenue landed at US$17.1b and basic earnings per share came in at US$2.33, while operating pretax margin widened by 70 basis points. The twist is in the mood, not the math. After a 17.7% gain over the past three months, the stock barely moved today, up only 0.3%. That muted tick reflects investors catching their breath rather than reacting to fresh information, even as profit margins continue to quietly reshape the story. Like the steady margins at International Business Machines but wondering where the next compelling setup might come from after such a strong three month run? Check out our screener of resilient, lower risk stocks through the 30 resilient stocks with low risk scores. - Revenue (Q3 2026 vs. Q3 2025): US$17.10b vs. US$16.33b (up about 4.7%) - Net Income (Excl. Extra Items, Q3 2026 vs. Q3 2025): US$2,200m vs. US$1,744m (up about 26.2%) - Basic EPS (Q3 2026 vs. Q3 2025): US$2.33 vs. US$1.87 (up about 24.7%) - Operating Pretax Margin (Q3 2026 vs. Q3 2025): Margin widened by 70 basis points (indicating improved profitability year on year) Earnings tell you what International Business Machines just produced on the income statement, but investors who care about what they are paying for the stock usually focus on cash flowing through the business over time. When you look at International Business Machines' cash flows in isolation, the stock could be a slight 11% undervalued. The upbeat thesis hangs on IBM turning its newer platforms into real, recurring growth rather than just a slide deck story. "The main thing that has to go right is that IBM converts its strong positions in Red Hat OpenShift, automated security remediation and quantum computing investment into durable software and services growth that more than offsets any pressure on mainframe and other CapEx sensitive revenues." Q3 points squarely in that direction. Software revenue rose 9%, with OpenShift ARR at US$2.4b and growing above 30%. Data software advanced 20% helped by Confluent. Lightwell already carries a roughly US$700m pipeline. Even mainframe linked Transaction Processing increased 10%, so the quarter shows pressure easing rather than weighing. One Narrative disagrees with today's price. → See where this Narrative says International Business Machines should trade. The skeptical view hangs on IBM failing to smooth out hardware and software cycles, leaving earnings exposed when mainframe demand fades. "the 42% decline in IBM Z Infrastructure revenue in Q2 2026 off a strong launch comparison points to lumpier demand and a risk that future mainframe cycles increasingly front load orders and then sag more sharply." Q3 brings a partial rebuttal. Infrastructure revenue grew 5% and Distributed Infrastructure climbed 32%, while Transaction Processing advanced 10%. That recovery suggests slipped Z deals and related software did close. The pattern still supports the lumpiness concern, since a sharp rebound after a prior drop does not yet prove smoother cycles, just effective catch up. International Business Machines just showed that even a stronger income statement may not move a share price. The real opportunity is finding stocks that could be undervalued before the market corrects them. - Company 1 - 35% below our estimate - converts a growing advisory mandate pipeline and senior hiring into higher-margin complex capital and restructuring fee revenue. - Company 2 - 31% below our estimate - connects and secures customer data as critical workloads shift onto custom silicon and tightly integrated digital infrastructure platforms. - Company 3 - 24% below our estimate - meters enterprise AI usage as productivity, cloud workloads and developer tooling consolidate into a single integrated subscription stack. That is three of the list. See all 29 potentially undervalued companies → This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include IBM. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

VANCOUVER, BC, Oct. 23, 2026 /PRNewswire/ -- Stock Preachers News Commentary - Stocks closed a volatile earnings week with a split verdict: the Dow gained 0.64% and the Russell 2000 jumped 2.07%, while the Nasdaq Composite fell 0.45% and the S&P 500 slipped 0.22%. The VIX rose to 19.40 and the VXN climbed to 28.13 as traders weighed a wave of third-quarter results. Gold dropped 3.47% and silver fell 4.90% on the week, while WTI crude rose 3.74% on Thursday alone. The 10-year Treasury yield eased 11 basis points to 4.99%. Active Companies from around the markets with current developments this week include: Meta Platforms, Inc. (Nasdaq: META), Texas Instruments Incorporated (Nasdaq: TXN), RTX (NYSE: RTX), IBM (NYSE: IBM), and First Citizens BancShares, Inc. (Nasdaq: FCNCA). Large-cap benchmarks diverged sharply this week. The Dow closed at 52,337.54, up 0.64% for the week despite a 1% drop on Friday, while the S&P 500 ended at 7,642.22, down 0.22% weekly after touching a week high of 7,770.40. The Nasdaq Composite settled at 26,022.45, down 0.45% on the week, dragged by a rough stretch for megacap tech following a batch of earnings reports. The Russell 2000 was the standout, closing at 2,777.63 for a 2.07% weekly gain, outperforming its large-cap peers as investors rotated toward smaller names. RSI readings show the Nasdaq at 38.9 and the S&P 500 at 43.5, both in cooler territory, while the Dow's RSI of 54.1 reflects its relative strength this week. Volatility ticked higher into the weekend, with the VIX up 0.96 points for the week to 19.40 and the VXN up a full point to 28.13. In commodities, natural gas spiked 8.66% on Thursday alone even as it remained down 0.65% for the week, while copper rose 2.44% daily. The dollar firmed slightly against the euro, with EUR/USD down 0.24% on the week to 1.12. The full report also breaks down key support and resistance levels for each index, additional earnings movers, and sentiment heading into next week's sessions. CONTINUED... Read this and more news for Meta Platforms, Inc. (Nasdaq: META), Texas Instruments Incorporated (Nasdaq: TXN), RTX (NYSE: RTX), IBM (NYSE: IBM), and First Citizens BancShares, Inc. (Nasdaq: FCNCA) at: https://stockpreachers.com/articles/small-caps-lead-big-tech-lags-as-earnings-season-shakes-the-tape/ In other industry developments and happenings in the market this week include: Meta Platforms, Inc. (Nasdaq: META) Meta reported third-quarter revenue of $64.60 billion, up 26% year over year, but net income of $9.86 billion reflected a $9.89 billion charge tied to an agreement with 52 state attorneys general over teen mental health and social media litigation. Diluted EPS was $3.83, up 265% year over year; excluding the litigation charge, EPS would have been $7.40. Operating margin fell to 20% from 40% a year earlier, while costs and expenses rose 68% to $51.61 billion. Capital expenditures, including finance lease payments, totaled $34.91 billion, and free cash flow was negative $2.12 billion for the quarter. "We hit major milestones this quarter toward delivering personal superintelligence for everyone - including launching Muse and Muse Wonder, our first frontier model," said Mark Zuckerberg, Meta founder and CEO. "Our investments are paying off, the core business is strong, and we're seeing velocity across the board." The company guided fourth-quarter revenue to a range of $73-76 billion and raised full-year 2026 total expense guidance to $175-179 billion. Read the release. Texas Instruments Incorporated (Nasdaq: TXN) Texas Instruments reported third-quarter revenue of $6.06 billion, up 28% from a year earlier, with net income of $2.43 billion and earnings per share of $2.62. Operating profit rose 73% to $2.87 billion, and revenue increased 11% sequentially. "Revenue increased 11% sequentially and 28% from the same quarter a year ago with continued broad growth in industrial, automotive and data center," said Haviv Ilan, TI's chairman, president and CEO. Trailing 12-month cash flow from operations was $9.9 billion, with free cash flow of $8.4 billion. The company returned $5.8 billion to shareholders over the trailing 12 months and guided fourth-quarter revenue to a range of $5.80 billion to $6.30 billion, with earnings per share expected between $2.45 and $2.79. Read the release. RTX (NYSE: RTX) RTX reported third-quarter sales of $25.0 billion, up 11% versus the prior year and 12% organically, with adjusted EPS of $2.26, up 33% from a year earlier. GAAP EPS was $1.89. Operating cash flow was $2.9 billion and free cash flow was $2.1 billion, with results including $0.25 of IEEPA cost recovery per share. The company's backlog reached a record $340 billion, including $176 billion commercial and $164 billion defense, after over $81 billion of new awards including Tomahawk and AMRAAM multi-year production contracts. "Our strong execution and operational focus in the third quarter enabled RTX to deliver double-digit organic sales growth across commercial aerospace and defense," said RTX Chairman and CEO Chris Calio. The company raised its full-year adjusted EPS outlook to $7.65-$7.75 and adjusted sales guidance to $97.0-$97.5 billion. Read the release. IBM (NYSE: IBM) IBM reported third-quarter revenue of $17.1 billion, up 5% as reported and 6% at constant currency, with Software revenue up 8% and Infrastructure revenue up 4%. GAAP diluted earnings per share were $2.31, up 26% year over year, while operating (non-GAAP) EPS was $2.95, up 11%. The company generated $4.0 billion in net cash from operating activities in the quarter and $3.0 billion in free cash flow, up $0.7 billion year over year. Year to date, free cash flow reached $7.8 billion. "Disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow," said Arvind Krishna, IBM chairman, president and chief executive officer. IBM now expects full-year free cash flow to increase by more than $1 billion year over year, while continuing to guide constant currency revenue growth of four to five percent. Read the release. First Citizens BancShares, Inc. (Nasdaq: FCNCA) First Citizens BancShares reported third-quarter net income of $606 million, down from $672 million in the linked quarter. Net income available to common stockholders was $577 million, or $51.23 per common share, a $63 million decrease from the prior quarter's $640 million. Net interest income rose to $1.70 billion, up $43 million from the linked quarter, while net interest margin declined 3 basis points to 3.07%. The company completed its BMO Branch Acquisition on September 4, 2026, assuming approximately $4.9 billion in deposits and acquiring approximately $650 million in loans. "We returned $600 million to our stockholders through share repurchases and further optimized our balance sheet by repaying another $8.0 billion of the Purchase Money Note," said Chairman and CEO Frank B. Holding, Jr. The board approved a new repurchase plan authorizing up to $1.2 billion of Class A common shares through 2027. Read the release. Contact Information: https://stockpreachers.com Media Contact: [email protected] DISCLAIMER: Nothing in this article should be considered as personalized financial advice. We are not licensed under securities laws to address your particular financial situation. No communication by our employees to you should be deemed as personalized financial advice. Please consult a licensed financial advisor before making any investment decision. This is a market commentary and is not a paid advertisement. This article is being distributed by Stock Preachers, which is wholly owned and operated by Market Equities Limited ("MEL"), a company incorporated under the laws of Ireland. This is an independent market commentary published on a non-paid basis. MEL has not been paid any fee by any company mentioned in this article for its production or distribution, and MEL has no advertising or digital media agreement with any company mentioned in this article. The companies mentioned have not reviewed or approved this article. 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Eagle Eye is not a broker-dealer, and nothing it provides is investment advice. Data may be delayed. Always do your own research. View original content to download multimedia:https://www.prnewswire.com/news-releases/dow-and-small-caps-climb-weekly-while-nasdaq-slips-on-megacap-earnings-charges-302918459.html View original content to download multimedia: http://www.newswire.ca/en/releases/archive/October2026/23/c0679.html

Western Digital Corporation WDC reported first-quarter fiscal 2027 non-GAAP earnings of $4.64 per share, which surpassed the Zacks Consensus Estimate of $4.09. The bottom line increased 161% year over year and 30% sequentially, exceeding the high end of management's guidance of $4 (+/- 15 cents). The company reported quarterly revenue of $4.38 billion, up 55% year over year and 17% sequentially on the back of robust customer demand and favorable pricing trends. The figure beat the consensus mark of $4.16 billion. Western Digital Corporation price-consensus-eps-surprise-chart | Western Digital Corporation Quote Western Digital shipped 248 exabytes in the quarter, up 22% year over year and 8% sequentially. Nearline products remained the primary growth driver as the company advanced its product transitions. WDC is ramping up its latest-generation ePMR drives, with capacities up to 40TB, and plans to introduce HAMR technology in the first half of calendar 2027. These developments are expected to support stronger year-over-year growth in exabyte shipments. Adoption is advancing faster than in previous technology transitions, with WDC expecting the new platform to account for nearly 30% of nearline shipments in the fiscal second quarter and 50% in the fiscal third quarter of 2027. Western Digital's board of directors declared a quarterly cash dividend of 17.5 cents per share, representing a 17% increase from the previous dividend, payable on Dec. 17, 2026, to shareholders of record as of Dec. 4, 2026. The dividend increase highlights the company's financial momentum and its commitment to returning capital to shareholders. In the past year, shares have gained 173.6% compared with the Zacks Computer-Storage Devices industry's rise of 178.4%. Image Source: Zacks Investment Research Cloud end market revenue reached $3.9 billion (88% of total revenue), rising 54% year over year. Growth was driven by sustained demand for high-capacity nearline HDDs, including the initial ramp-up of its latest ePMR platform. Strong pricing trends further reflect the value and total cost of ownership (TCO) benefits the company offers its customers. Revenues from the Client end market (7%) were up 119% year over year to $320 million. Revenues from the Consumer end market (5%) surged 19% year over year to $193 million. Non-GAAP gross margin expanded to 58.1%, up 1,420 basis points (bps) year over year with incremental gross margin exceeding 80%. A favorable mix of higher-capacity drives, disciplined operational execution and stronger pricing across its portfolio drove the improvement. The company also reported a 28% year-over-year increase in average price per terabyte, accelerating from the high-teens growth recorded in the previous quarter. Non-GAAP operating margin rose to 49.1% from 30.4% in the year-ago quarter, highlighting its ability to sustain profitability improvements. WDC reported non-GAAP operating income of $2.15 billion, up 152% year over year, driven by strong revenue growth, higher gross margins and improved operating leverage. Non-GAAP operating expenses were $391 million, improving 130 bps sequentially, reflecting stronger operating leverage. As of Oct. 2, 2026, cash and cash equivalents were $1.3 billion compared with $1.6 billion reported as of Jul 3, 2026. WDC ended the quarter with $789 million of debt. Western Digital generated $1.6 billion in cash from operations compared with $672 million in the prior-year quarter. Free cash flow amounted to $1.4 billion in the quarter under review, up 130%. WDC returned $1.1 billion to shareholders through share buybacks and dividends, underscoring the sustainability of free cash flow generation and its commitment to creating long-term shareholder value. Western Digital expects its strong performance to continue in the second quarter of fiscal 2027, led by robust exabyte growth and improved pricing. At the midpoint of its guidance, the company expects revenue of $5.1 billion (+/- $100 million), representing a sequential increase of approximately 16% and a year-over-year rise of 69%. Management projects non-GAAP gross margin of 60-61%, fueled by a favorable shift toward higher-capacity drives and a strong pricing environment. Non-GAAP EPS is expected to reach $5.8 (+/- 20 cents). WDC expects operating expenses to be between $400 million and $410 million for the fiscal second quarter, reflecting a sequential increase due to higher spending on product qualification activities. Currently, Western Digital has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Valero Energy Corporation VLO reported third-quarter 2026 adjusted earnings of $23.90 per share, up 553% from $3.66 a year ago. Revenues climbed 43.3% year over year to $46.10 billion from $32.17 billion, beating the Zacks Consensus Estimate by 23.29%. The results benefited from substantially stronger refining margins and improved profitability across the Renewable Diesel and Ethanol segments. Refining throughput averaged 2.97 million barrels per day, down from 3.09 million barrels per day a year earlier. Quest Diagnostics Incorporated DGX reported third-quarter 2026 adjusted earnings of $3.00 per share, up 15.4% year over year. The figure beat the Zacks Consensus Estimate by 5.3%. Revenues rose 10% year over year to $3.10 billion, surpassing the Zacks Consensus Estimate by 1.7%. Growth was supported by strong testing demand across physician, hospital and consumer channels, with organic requisition volume increasing 14.4%. International Business Machines Corporation IBM reported strong third-quarter 2026 results, with adjusted earnings rising 11% year over year to $2.95 per share. The figure beat the Zacks Consensus Estimate of $2.88 by 2.4%. Revenues increased 4.7% to $17.10 billion, surpassing the consensus mark of $16.87 billion by 1.4%. Software revenues increased 8.2% year over year to $7.80 billion, up 8.7% at constant currency. Hybrid Cloud revenues grew 11%, supported by Red Hat, while Data jumped 20% at constant currency, benefiting from Confluent's performance. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Western Digital Corporation (WDC) : Free Stock Analysis Report International Business Machines Corporation (IBM) : Free Stock Analysis Report Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report Valero Energy Corporation (VLO) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Earnings season is in full swing, and Big Tech calls are about more than the heavy use of "superintelligence," which some read as a bid to please the White House after it reportedly disliked the term "artificial intelligence." Here are three moments from the earnings calls of Tesla (TSLA), Meta (META), and IBM (IBM) on late Wednesday that stuck with us. Much of the focus today is on Tesla cutting its capital spending plans for this year to $20 billion from the $25 billion it guided to three months ago. A key factor appears to be that its Optimus robots need more training before they're released into the real world. Elon Musk said investors should think of Optimus as a baby: "A big difference with Optimus versus the cars is we don't have this vast fleet of cars from which we can gather training data. With Optimus, we have to bootstrap it by making the robots and having them do self-play, which is really how a human learns to navigate the world. You can see this when you have a toddler, and they grow up, and initially, they're sort of wobbly, and they don't know how to do things. Eventually they learn to wipe their own ass, which is a big milestone. As anyone who's had kids knows. Then they learn to read and do all sorts of things and be able to do these things. They learn this by playing. We actually need Optimus to play at scale in order to have it be really good at tasks in the real world." Are early users of Meta's (META) Muse AI agent overspending? Mark Zuckerberg's comments on credit limits during the earnings call suggest they might be. That raises a bigger question: Could AI agent shopping end badly for retailers and banks, in the form of unpaid debts and write-offs? "The most common use case for Muse is shopping, with more than a quarter of people who are using Muse engaging in this with an average purchase size of over $200," Zuckerberg said on the call. "Plaid told us that they hadn't seen activity like they're seeing with their connector on any other service before. In the first week, we had to work with Stripe to raise credit limits since the volumes were above what any of us expected." IBM (IBM) CEO Arvind Krishna seemed to be in a better place this earnings call compared to three months ago, which came on the heels of a shock earnings warning that sent the stock reeling. It was interesting to hear Krishna call out some C-suite concerns about the current spending on AI tools: "I think what we are seeing is that at least larger enterprises are becoming a lot more cognizant and a lot more aware of what is the true ROI of all of their AI spend. They are also getting worried if some of the AI spending completely out of control with no real return. But the way I have always characterized it is, there is no question to us, and this is the advice I give every C-suite member that I meet, that what we are trying to give people on AI, the productivity, the advantages of AI, the way it is going to change work, is very real. Let me not make any confusion around that." Follow Brian Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email him at [email protected].

In July, IBM (NYSE:IBM) stock suffered the worst day in its 115-year history, falling about 25% after the company warned that customers had shifted spending away from its products. The miss was clearly a matter of timing -- a series of major contracts IBM was planning didn't close by the end of the quarter, as its customers shifted spending to memory and storage products whose prices were increasing rapidly. Missed AI's "Act 1"? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue » Three months later, IBM's third-quarter report, which landed on Oct. 21, mostly backed that assessment up, and the company posted strong revenue and earnings. So, why isn't the stock bouncing back? Image source: Getty Images. IBM's revenue rose 5% to $17.1 billion in the third quarter, up from 1% growth in the second. Software grew 9% at constant currency, and operating earnings per share rose 11% to $2.95. Free cash flow was $3 billion, and management raised its full-year outlook to FCF growth of more than $1 billion. CFO Jim Kavanaugh said about two-thirds of the large software deals that slipped in the second quarter closed in the third. Transaction processing software, which is tied to mainframes, swung from a 9% decline to 10% growth. That looks like delayed spending, not lost customers. IBM closed its roughly $11 billion acquisition of Confluent in March, so that revenue wasn't included in last year's numbers. Confluent's last reported quarterly revenue was $314.8 million, and IBM's software revenue in Q3 2025 was $7.2 billion. So that would put IBM's organic software growth in this quarter at around 4%. That's real progress, but it's less dramatic than 9%. Management is also tapping the brakes. CEO Arvind Krishna said he doesn't expect transaction processing to keep growing at double digits, and IBM expects that business to be flat for the year. Kavanaugh said the company is expecting about $32 billion in full-year software revenue. Subtract the $22.6 billion IBM has recognized through nine months, and the fourth quarter works out to roughly 4% growth, versus 8% in the third. Mainframe hardware sales also fell 20%, although that came against a very strong launch a year ago. I still like IBM as a long-term investment in AI and quantum computing, but I'm not ignoring the risks. IBM spent $11.4 billion on acquisitions this year, so cash fell $3.4 billion to $11.1 billion, and debt rose $2.6 billion to $63.8 billion. The dividend looks well covered -- IBM paid $4.8 billion of dividends against $7.8 billion of free cash flow through nine months -- but there's less cushion for another big deal. Meanwhile, shareholders receive a dividend yield of about 2.7%. IBM isn't the kind of technology stock that's going to grab headlines like Nvidia or Palantir, but that doesn't mean investors should overlook it. The company has established itself as an important player in enterprise AI, while its hybrid cloud business and consulting operations provide opportunities for long-term growth. There are challenges, particularly as businesses remain cautious about technology spending. But IBM has something many high-flying AI stocks don't -- an established customer base, consistent cash flow, and a reliable dividend. That's why I remain bullish on Big Blue, despite the market's muted reaction to its third-quarter report. Before you buy stock in International Business Machines, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and International Business Machines wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $350,756!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,363,905!* Now, it's worth noting Stock Advisor's total average return is 922% — a market-crushing outperformance compared to 213% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of October 22, 2026. Patrick Sanders has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends International Business Machines, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy. Why Isn't IBM's Stock Bouncing Back After Strong Earnings Results? was originally published by The Motley Fool

- Interested in International Business Machines Corporation? Here are five stocks we like better. - IBM delivered stronger-than-expected Q3 results: Revenue grew 6% at constant currency, operating EPS rose 11%, and the company raised its full-year free-cash-flow growth outlook to more than $1 billion while maintaining 2026 revenue-growth guidance of 4% to 5%. - Software was the main growth engine, with revenue up 9%, annual recurring revenue reaching $24.9 billion, Red Hat growing 11%, OpenShift ARR rising more than 30%, and data revenue increasing 20%. - Infrastructure demand remained solid while consulting growth was modest: Infrastructure revenue rose 5%, led by 32% growth in distributed infrastructure, while consulting increased 2%; IBM said AI-related work represented 30% of consulting revenue and 35% of its backlog. - The AI Buildout Is Only 15% Complete—Here Is Where the Next Dollar Actually Goes International Business Machines (NYSE:IBM) reported third-quarter 2026 revenue growth of 6% at constant currency, led by accelerating software sales, infrastructure demand and modest consulting growth. The company said operating pre-tax margin expanded 70 basis points and diluted operating earnings per share rose 11%. IBM Chairman, President and CEO Arvind Krishna said the results exceeded the base case outlined in July and reflected "acceleration across our segments," including 9% software growth, 5% infrastructure growth and 2% consulting growth. The company raised its full-year free-cash-flow growth outlook to more than $1 billion while maintaining its expectation for 2026 revenue growth of 4% to 5%. → The AI Sell-Off Continues—These 3 Stocks Keep Raising Guidance Anyway - The Pentagon's $350 Million Quantum Push: Why IonQ Could Benefit More Than D-Wave Software revenue growth accelerated four percentage points sequentially to 9%, according to Chief Financial Officer Jim Kavanaugh. IBM's annual recurring revenue base grew 8% to $24.9 billion, while three of its four software subsegments posted double-digit revenue growth. Red Hat revenue rose 11%, with bookings returning to high-teens growth. OpenShift annual recurring revenue reached $2.4 billion and grew more than 30%. IBM said the performance reflected customer efforts to modernize applications and deploy AI workloads across hybrid environments. → Tesla's Roadster Reveal Hints at 2 Much Bigger Moves - Meta's Muse Highlights Arm's Growing Role in AI Infrastructure Data revenue increased 20%, supported by Confluent, where bookings grew about 20%. Krishna said enterprises increasingly need real-time data capabilities to support AI applications, particularly because much of their data remains inside enterprise environments rather than in public clouds. Transaction processing revenue grew 10%, reversing weakness seen in the prior quarter. Kavanaugh said approximately one-quarter of the software growth acceleration came from deals that had slipped from the second quarter, while roughly three-quarters came from new business. IBM closed around two-thirds of the large deals that slipped from the prior quarter. → Luxury's Middle Market Is Cracking—These 3 Stocks Could Win During the question-and-answer session, executives said they expect transaction-processing growth to moderate after the third-quarter rebound. Kavanaugh said the company is forecasting flat transaction-processing growth for the full year, while pointing to increasing mainframe capacity as a future monetization opportunity. - Red Hat revenue grew 11%, with bookings in the high teens. - OpenShift ARR exceeded $2.4 billion and grew more than 30%. - Data revenue rose 20%. - Transaction processing revenue increased 10%. - IBM said Lightwell, its open-source software security offering, has developed a pipeline approaching $700 million. Infrastructure revenue rose 5%, driven by 32% growth in distributed infrastructure. IBM said storage delivered record revenue growth and gained market share across FlashSystem, Storage Fusion, Tape and IBM Z Storage offerings. Kavanaugh said the company exited the quarter with a sizable distributed-infrastructure backlog that supports continued fourth-quarter momentum. IBM's z17 mainframe cycle continued to outperform prior programs, according to management. Krishna said z17 has generated more than $1 billion in incremental revenue over six quarters compared with earlier programs. The company also reported its strongest mid-range IBM Z launch in nearly two decades following the introduction of new single-frame and rack-mount systems in July. Kavanaugh said clients representing roughly 85% of installed MIPS capacity are maintaining or expanding capacity, while aggregate installed capacity has tripled over the last few mainframe programs. Consulting revenue increased 2%, with strategy and technology revenue up 4%. IBM said cybersecurity delivered nearly double-digit growth in intelligent operations. AI-related work represented about 30% of consulting revenue during the quarter and 35% of backlog. Krishna said clients are moving beyond AI experimentation and are focusing more closely on return on investment, workflow redesign, integration with existing systems and control of AI spending. He said enterprises are also increasingly focused on sovereign AI, including the ability to keep data, models and logs under their own control. IBM highlighted its platforms for data, AI development and agent orchestration, identity and policy management, and hybrid-cloud operations. The company said it is expanding partnerships, including a new strategic relationship with OpenAI and an expanded relationship with Google Cloud. Krishna also discussed the cost difference between frontier AI models and open-weight alternatives. He said open-weight models have become closer in performance to leading models and can potentially run at 10% to 25% of their token cost, depending on the deployment. Adjusted EBITDA margin expanded 60 basis points, while operating pre-tax margin expanded 70 basis points. Software segment profit margin rose 210 basis points and infrastructure segment margin increased 120 basis points. Consulting margin declined modestly as IBM reinvested productivity gains into digital assets and its services-as-software model. For the first nine months of 2026, IBM generated about $8 billion in free cash flow, up approximately $600 million, or 8%, from a year earlier. The company ended the quarter with $11.1 billion in cash and returned $4.8 billion to shareholders through dividends during the first nine months. IBM expects full-year software growth of approximately 7% to 8%, with about 7% as its revised base case. It continues to forecast low-double-digit infrastructure revenue growth and low- to mid-single-digit consulting growth. The company also maintained its expectation for 100 basis points of full-year operating pre-tax margin expansion. Looking further ahead, Kavanaugh said IBM plans to provide more detail on 2027 targets in January. He pointed to Red Hat demand, Confluent integration, Lightwell, virtualization, hybrid cloud opportunities and expected growth synergies from acquisitions as factors supporting the company's longer-term software outlook. International Business Machines Corporation (NYSE:IBM), commonly known as IBM, is a global technology and consulting company that helps organizations modernize their information technology and business operations. Its offerings include hybrid cloud solutions, artificial intelligence software and services, enterprise software, IT infrastructure, cybersecurity, data analytics, and technology consulting. IBM provides products and services to businesses, governments, and other institutions across industries and regions worldwide. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "What International Business Machines (IBM) Said on Its Q3 Earnings Call" was originally published by MarketBeat. View MarketBeat's top stocks for October 2026.

International Business Machines Corporation IBM reported strong third-quarter 2026 results, with adjusted earnings rising 11% year over year to $2.95 per share. The figure beat the Zacks Consensus Estimate of $2.88 by 2.4%. Revenues increased 4.7% to $17.10 billion, surpassing the consensus mark of $16.87 billion by 1.4%. The upside reflected accelerating Software and Infrastructure growth, improved transaction execution and productivity initiatives. Software annual recurring revenue (ARR) reached $24.9 billion, up 8% year over year. Operating pre-tax margin expanded 70 basis points (bps). International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote Software revenues increased 8.2% year over year to $7.80 billion, up 8.7% at constant currency. Hybrid Cloud revenues grew 11%, supported by Red Hat, while Data jumped 20% at constant currency, benefiting from Confluent's performance. Automation declined 3% amid a challenging comparison. Transaction Processing rebounded sharply, growing 10% at constant currency after a soft prior quarter. Management attributed the recovery to renewed demand and the closure of approximately two-thirds of large transactions delayed from the second quarter. These deferred deals contributed roughly one-quarter of the sequential Software growth acceleration. Red Hat bookings growth accelerated to the high teens, while OpenShift ARR surpassed $2.4 billion, increasing more than 30%. Software segment profit climbed 15.2% to $2.73 billion, lifting margin 210 bps to 35%. Infrastructure revenues rose 4.2% year over year to $3.71 billion, representing 4.9% growth at constant currency. Hybrid Infrastructure advanced 9% at constant currency, driven by 32% growth in Distributed Infrastructure, reflecting broad-based strength in storage and Power systems. IBM Z revenues declined 19% at constant currency against a demanding year-ago comparison. Nevertheless, the z17 program generated more than $1 billion in incremental revenues compared with the previous generation over six quarters. New midrange systems also delivered the platform's strongest midrange revenue launch in nearly two decades. Infrastructure segment profit increased 11% to $715 million, while margin expanded 120 bps to 19.3%, aided by productivity initiatives. Consulting revenues were nearly flat year over year at $5.34 billion, increasing 1.8% at constant currency. Strategy and Technology grew 4% at constant currency, supported by application modernization and data and AI transformation demand. Intelligent Operations remained flat on a constant-currency basis. Generative AI accounted for approximately 30% of quarterly Consulting revenues and 35% of backlog. Consulting signings totaled $5 billion, declining 2% at constant currency, while the trailing 12-month book-to-bill ratio was 1.04. Segment profit declined 4.8% to $653 million, with margin contracting around 60 bps to 12.2% as IBM reinvested productivity savings into digital capabilities. IBM's non-GAAP gross profit rose 4% to $10 billion, although gross margin contracted 20 bps to 58.5%. Operating expenses and other income totaled $6.71 billion, declining roughly 2% year over year. Non-GAAP pre-tax income increased 9% to $3.30 billion, while adjusted EBITDA rose 7% to $4.9 billion. Adjusted EBITDA margin improved approximately 60 bps to 28.7%, reflecting operational efficiencies across general administration, sales and software development. IBM generated $4.03 billion in operating cash flow during the quarter compared with $3.08 billion a year earlier. Free cash flow increased $0.7 billion to $3 billion. For the first nine months, free cash flow reached $7.8 billion, up $0.6 billion year over year. The company exited the September quarter with $11.1 billion in cash, restricted cash and marketable securities. Total debt was $63.8 billion, including $12.7 billion attributable to IBM Financing. Quarterly dividend payments totaled approximately $1.6 billion. IBM reaffirmed its full-year 2026 constant-currency revenue growth expectation of 4% to 5%. However, management raised its free cash flow outlook, now anticipating an increase exceeding $1 billion year over year. Software revenues are projected to grow 7% to 8%, supported by double-digit Hybrid Cloud growth and mid-teens Data expansion. Transaction Processing is now expected to remain flat for the year, an improvement from previous expectations. Infrastructure revenues are forecast to grow in the low single digits, while Consulting growth is expected to accelerate to the low-to-mid-single-digit range. IBM also maintained its target of 100 bps operating pre-tax margin expansion for 2026, supported by continued productivity improvements. IBM currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Arista Networks Inc. ANET is scheduled to release third-quarter 2026 earnings on Nov. 3. The Zacks Consensus Estimate for earnings is pegged at $1.08 per share, suggesting growth of 44% from the year-ago reported figure. Arista has a long-term earnings growth expectation of 22.8%. Arista delivered an average earnings surprise of 8.9% in the last four reported quarters. Akamai Technologies, Inc. AKAM is slated to release third-quarter 2026 earnings on Nov. 5. The Zacks Consensus Estimate for earnings is pegged at $1.67 per share, indicating a 10.2% decline from the year-ago reported figure. Akamai has a long-term earnings growth expectation of 5.9%. Akamai delivered an average earnings surprise of 4.8% in the last four reported quarters. GLOBALFOUNDRIES Inc. GFS is set to release third-quarter 2026 earnings on Nov. 4. The Zacks Consensus Estimate for earnings is pegged at 51 cents per share, implying a rise of 24.4% from the year-ago reported figure. GLOBALFOUNDRIES has a long-term earnings growth expectation of 21.2%. GFS delivered an average earnings surprise of 10.9% in the last four reported quarters. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report International Business Machines Corporation (IBM) : Free Stock Analysis Report Akamai Technologies, Inc. (AKAM) : Free Stock Analysis Report Arista Networks, Inc. (ANET) : Free Stock Analysis Report GlobalFoundries Inc. (GFS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

- IBM beat Q3 estimates but fell 7% after Krishna warned enterprise clients are scrutinizing AI spending with "no real return." - Accenture fell just 0.5% and Infosys dropped 2%, far less than IBM's 7% slide, pointing to company-specific rather than sector-wide damage. - IBM raised its free cash flow target but held its full-year revenue growth forecast at between 4% and 5%, disappointing investors who had expected an upgrade. - Building a portfolio and living off one are two completely different skills, and almost nobody teaches the second. This problem is what The Definitive Guide to Retirement Income helps, and it is free today. Read more here. (Sponsor) A quarter that topped Wall Street forecasts on revenue and adjusted earnings is drawing sellers into International Business Machines (NYSE:IBM), as an unchanged full-year outlook and pointed artificial intelligence (AI) commentary from the chief executive set the tone. IBM stock is down 7% to $233.50 in morning trading. Today's selling pressure is powerful in the technology sector. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 0.9% on AI spending worries, while the iShares U.S. Technology ETF (NYSEARCA:IYW) is down 2%. Chief executive Arvind Krishna delivered that commentary after IBM reported third-quarter 2026 results on October 21. The company sells the software, mainframes and consulting companies use to implement AI, so his caution reaches across information technology services. IBM's Q3 2026 revenue reached $17.1 billion, ahead of the $16.84 billion estimate. The company's adjusted earnings per share (EPS) of $2.95 also topped the $2.87 consensus. Software revenue at IBM rose 8% to $7.8 billion, accelerating from the prior quarter on 11% growth at Red Hat. That strength didn't change the full-year view, as IBM kept its constant-currency revenue growth forecast at 4% to 5%. The unchanged forecast disappointed investors who had hoped for an increase. ------ Many successful investors eventually reach the same moment. The saving is done, the portfolio is built, and the question quietly changes from how much can I grow this to how much can I take out? Get that second question wrong and decades of good investing can come apart in a handful of years. That is exactly what The Definitive Guide to Retirement Income helps answer. It covers what your retirement could actually cost, which income sources are worth using, and the withdrawal math that decides whether the money lasts. It is free today from Fisher Investments. Read More Here › ------ On IBM's conference call, Krishna stated that enterprise customers are becoming "a lot more cognizant and a lot more aware of what is the true ROI of all of their AI spend." Clients are also nervous about "some of the AI spending completely out of control with no real return," he added. Krishna framed that shift as an opening, since clients want help redesigning workflows and controlling token spending: "That is the tailwind for us." The steep drop in IBM stock signals that the warning is driving the reaction. IBM's chief executive also recommended companies to "pick a few" AI initiatives and scale them, warning against running "100 little experiments" that never get enough investment. Riding an AI mania is fine as long as you plan the exit, something we covered in a free handbook on both halves of the trade. Mainframe revenue from IBM Z fell 20% as the product cycle matured, while quarterly free cash flow reached $3.03 billion and management raised its full-year target for that metric to an increase of more than $1 billion. IBM's consulting business grew just 0.2%, a soft spot close to the work Krishna described. Meanwhile, Accenture (NYSE:ACN) shares are down 0.5% to $239, a far smaller drop than IBM's. Infosys (NYSE:INFY) stock is down 2% to $12.44, steeper than Accenture but well short of the slide in IBM stock. Both of these companies sell the consulting work Krishna described. So, their softer declines suggest that the damage is mostly contained to IBM stock. IBM's fourth-quarter results will test its software growth. Management expects full-year software expansion of 7% to 8%, with 7% as its revised base case, and double-digit Red Hat gains in the fourth quarter. IBM beat on both lines, accelerated software growth and raised its cash flow goal. Against that are an unchanged revenue forecast, a shrinking mainframe line and total debt of $63.8 billion, up $2.6 billion year to date. Investors considering IBM stock exposure should size their positions carefully given that mix. (Sponsor) Most people spend their entire working lives focusing on one thing: growing a pile of money. Then they retire and discover the skill they actually need is close to the opposite. Turning that pile into steady income, year after year, through good markets and bad, without ever running out. It may be the least discussed and most consequential transition in personal finance, and plenty of otherwise careful investors walk into it with no real plan. That is exactly what The Definitive Guide to Retirement Income helps answer. It is a free guide from Fisher Investments covering what your retirement will really cost, where the cash flow should come from, and how much you can safely withdraw each year. Learn more here. Learn More Here › Contact [email protected] for any questions or corrections.

International Business Machines Corporation IBM emphasized accelerating software demand, operational efficiency and enterprise AI adoption during its third-quarter 2026 earnings call. Management raised its free cash flow outlook while maintaining its full-year revenue growth expectations. The discussion centered on recovering software transactions, Red Hat momentum and infrastructure demand. Executives also addressed questions about the sustainability of software growth and opportunities emerging from enterprise AI modernization. IBM expects full-year 2026 revenue growth of 4% to 5% at constant currency. Management raised its annual free cash flow growth forecast to more than $1 billion year over year. Chief financial officer James Kavanaugh attributed the improved cash outlook to adjusted EBITDA growth and productivity initiatives, partially offset by higher capital expenditures, cash taxes and interest expenses. IBM reported operating earnings of $2.95 per share, exceeding the Zacks Consensus Estimate of $2.88. Revenue reached $17.1 billion, surpassing the $16.84 billion consensus estimate. Operating pretax margin expanded 70 basis points (bps). International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote Software revenue increased 9% at constant currency, accelerating four percentage points sequentially. Kavanaugh highlighted strong recurring revenue and improved transactional execution. Red Hat grew 11%, supported by bookings growth in the high teens. OpenShift annual recurring revenue reached $2.4 billion, growing more than 30%. Data revenue increased 20%, while Transaction Processing advanced 10%. During questioning from Evercore ISI, CEO Arvind Krishna emphasized that AI-driven application modernization supports sustained demand for OpenShift and Confluent. Kavanaugh clarified that roughly one-quarter of software acceleration came from previously delayed transactions, while three-quarters reflected new business. Infrastructure revenue increased 5% at constant currency, driven by 32% growth in Distributed Infrastructure. Storage demand remained strong as enterprises expanded AI-related infrastructure. Krishna highlighted the z17 platform's performance, noting that it generated more than $1 billion of incremental revenue across six quarters compared with previous programs. Responding to Bank of America, Krishna cautioned that Transaction Processing's double-digit growth should moderate. However, Kavanaugh pointed to expanding installed mainframe capacity as a future software monetization opportunity, particularly entering 2027. Management positioned enterprise AI adoption around data integration, workflow modernization and secure deployment rather than isolated experimentation. Krishna highlighted Confluent's real-time data capabilities, HashiCorp's security tools and Red Hat's hybrid infrastructure. IBM also discussed its Lightwell security offering, which has developed a pipeline approaching $700 million. During questions from Jefferies, Krishna emphasized growing enterprise scrutiny of AI investment returns. He explained that meaningful productivity improvements require workflow redesign and integration with existing systems, creating opportunities for IBM's software and consulting businesses. Kavanaugh reiterated IBM's expectation for 100 bps of full-year operating pretax margin expansion, supported by productivity improvements and expense discipline. Software segment profit margin increased 210 bps, while Infrastructure expanded 120 bps. Consulting margins declined as IBM reinvested productivity savings into digital assets and AI-enabled service delivery. Consulting revenue increased 2% at constant currency. AI-related work represented approximately 30% of quarterly consulting revenue and 35% of backlog, reflecting customers' focus on enterprise transformation. Management's commentary reflected confidence in software-led growth while maintaining cautious assumptions for the remainder of 2026. Krishna and Kavanaugh emphasized continued investment in hybrid cloud, enterprise AI and quantum computing alongside operational efficiency. Their forward-looking priorities center on recurring revenue, infrastructure modernization and stronger cash generation. IBM currently carries a Zacks Rank #3 (Hold), indicating a neutral near-term outlook under the Zacks ranking system. Its Value Score of D, Growth Score of C and Momentum Score of F indicate relatively weak characteristics across these investment styles. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here. The company's VGM Score of F also reflects an unfavorable combined assessment of value, growth and momentum. Zacks generally favors stocks carrying a Rank #1 or #2 (Buy) alongside Style Scores of A or B. IBM's current combination warrants a cautious interpretation, while its Zacks Rank could change as analysts revise earnings estimates following the third-quarter results. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report International Business Machines Corporation (IBM) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Image source: The Motley Fool. Wed, Oct. 21, 2026 - Global Head of Investor Relations - Olympia McNerney - Chairman, President, and Chief Executive Officer - Arvind Krishna - Senior Vice President and Chief Financial Officer - Jim Kavanaugh Operator: Welcome, and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to Olympia McNerney, IBM's Global Head of Investor Relations. Olympia, you may begin. Olympia McNerney: Thank you. I'd like to welcome you to IBM's third quarter 2026 earnings presentation. I'm Olympia McNerney, and I'm here today with Arvind Krishna, IBM's Chairman, President, and Chief Executive Officer, and Jim Kavanaugh, IBM's Senior Vice President and Chief Financial Officer. We'll post today's prepared remarks and a replay of today's webcast on the IBM investor website within a couple of hours. The earnings presentation is already available. To provide additional information to our investors, our presentation includes certain non-GAAP measures. For example, all of our references to revenue and signings growth are at constant currency. We provided reconciliation charts for these and other non-GAAP financial measures at the end of the presentation, which is posted to our investor website. Finally, some comments made in this presentation may be considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements involve factors that could cause our actual results to differ materially. Additional information about these factors is included in the company's SEC filings. With that, I'll turn the call over to Arvind. Arvind Krishna: Thank you for joining us today. Revenue growth in the third quarter accelerated to 6% above the base case we laid out in July. This performance reflects acceleration across our segments, led by software growth of 9%, infrastructure growth of 5%, and modest improvement in consulting. We entered the quarter focused on disciplined execution, which also drove strong performance in profitability and free cash flow. These results demonstrate the strength of our portfolio, the continued value clients place in mission-critical platforms, and our confidence in both our strategy and the outlook for the balance of the year. Technology innovation in both hybrid infrastructure and super intelligence is leading to better business performance. This quarter's results reinforce the strategic choices we have made over the last several years to advance IBM as a software-led hybrid cloud and AI platform company. In software, Red Hat again grew 11% with bookings growth accelerating back to the high teens. OpenShift ARR growth accelerated to over 30% as organizations scale super intelligence applications and agents into production, reinforcing our conviction that we remain in the early stages of a long-term application modernization cycle. Transaction processing grew 10%, underscoring the strategic importance of the mainframe and validating our view that the softness we saw in the second quarter reflected timing rather than underlying demand. Data grew 20%, supported by continued strength in Confluent. Infrastructure was up 5%, driven by continued momentum in distributed infrastructure, growing 32% this quarter. AI continues to increase demand for storage, and we are gaining share through differentiated offerings across FlashSystem, Storage Fusion, Tape, and IBM Z storage, including AI-enabled capabilities that help clients scale and manage data for AI. Consulting revenue grew 2% as clients modernized to deploy AI securely and at scale. The durability of our portfolio remains a defining feature of IBM today. z17 continued the strongest innovation cycle in the platform's history, generating more than $1 billion of incremental revenue over six quarters, compared with prior programs. This reflects the security, reliability, scalability, and compelling economics of the platform. 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. Building on that advantage, we introduced new single-frame and rack-mount IBM Z systems in July that help clients address data center space, cost, and deployment constraints without compromising performance or security. Client response has been strong, contributing to the highest mid-range revenue launch in IBM Z this quarter in nearly two decades. Last quarter, we told you Lightwell represents a multibillion-dollar opportunity for IBM and Red Hat to help clients secure their open-source software. Since then, some of the world's largest enterprises have signed up as clients, and we have built a pipeline approaching $700 million in a short period of time. We have released more than 40,000 remediated packages to the Lightwell network, demonstrating the rapid scale-up of our remediation capabilities. Now turning to our AI strategy. Enterprise AI is entering its next phase. Deploying more models or building more agents will not be enough. The advantage will belong to a company that can operate AI securely, efficiently, and sustainably across the enterprise. Organizations are recognizing that AI is only as effective as the system around it, the data that provides context, the workflows that orchestrate action, the infrastructure that secures and optimizes operations, and the hybrid cloud foundation that provides flexibility without lock-in. IBM has assembled these capabilities across four platforms. Confluent provides continuous business context through a real-time data foundation. watsonx, including IBM Bob and watsonx Orchestrate, support AI-driven software development and agent orchestration. HashiCorp and Apptio automate identity, access, and policy while optimizing cost and performance. Red Hat provides the open hybrid architecture spanning public cloud, on-premises, sovereign environments, and the edge. Together, these platforms help clients move from isolated deployments to AI operating at enterprise scale. Data sits at the center of the AI operating model. 72% of organizations report insufficient real-time data infrastructure, which holds back AI at scale. Agents need the current state of the business. That is why we are excited about Streamhouse, a capability from Confluent that continuously captures, transforms, and queries real-time data. It complements warehouses and lake houses. A Streamhouse makes real-time governed data continuously available to applications, analytics, and AI, unifying operational and analytical data into a single architecture. We believe Confluent is uniquely positioned with a complete open and hybrid approach that helps clients avoid lock-in while deploying wherever the data resides. As AI scales, clients ask two questions: what will it cost and who controls it? We are innovating on both. Apptio now connects AI spend to business results, providing visibility into AI usage, token consumption, and the cost of running it across the enterprise. llm-d, 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. IBM Bob now runs on-prem, so clients in regulated and sovereign environments can keep code and models on their own infrastructure. Governance matters as much as intelligence. As agents multiply, enterprises need to know who each agent is, what authority it has, and what it can access. HashiCorp Vault allows clients to register, authorize, audit, and revoke agents and secure their credentials. IBM Agent Identity and HashiCorp Vault are partnering with NVIDIA Open Agent Safety Platform to strengthen agent security. We believe Agent Identity will become as foundational to enterprise AI as identity has become to the internet. Finally, quantum remains a strategic area of differentiation for IBM and a significant long-term opportunity. In July, three independent demonstrations of quantum advantage were achieved on IBM hardware with the University of Chicago, Algorithmiq, and Qedma, providing further evidence that quantum computing is moving from scientific promise towards practical value. Our Nighthawk r2 processor has achieved important roadmap milestones across speed, scale, and quality, delivering 7,500 gates, executing 100,000 circuits per second, and enabling performance improvements of up to 19 times over prior generation systems. That performance changes both time to solution and the economics of quantum computation. Workloads costing approximately $100 to run on IBM could cost up to $10 million on slower competitive modalities. Recently, IBM was selected for Stage C, the third phase of the Quantum Benchmarking Initiative led by DARPA, the U.S. Defense Advanced Research Projects Agency, another validation of the strength of IBM's path to building a fault-tolerant quantum computer. Commercial momentum is also growing. This year, IBM Quantum has signed 16 enterprise engagements across industries including automotive, aerospace, telecommunications, financial services, and manufacturing. This includes AT&T and General Motors, amongst many others, who are now all part of the IBM Quantum Network, the world's largest network of quantum innovators. We are also advancing the technology and infrastructure required for industrial-scale fault-tolerant computing, including the successful connection of our first modular cryogenic systems and continued progress on our 300,000 sq ft Poughkeepsie manufacturing facility. This, along with the closing of the $1 billion award from the Department of Commerce in Anderon for manufacturing quantum wafers, gives us confidence that after the Starling demonstration, we are ready to scale. We look forward to talking more about our progress at our Quantum Day on December 10. In closing, our third quarter performance reflects the strength of our portfolio and the progress we are making against our strategic priorities of delivering both sustainable revenue growth and higher profitability. 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 $1 billion. With that, let me hand it over to Jim. Jim Kavanaugh: Thanks, Arvind. 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. Through the first nine months, we generated about $8 billion of free cash flow, up 8% year-over-year. These results reflect strength across our portfolio and solid execution against our priorities. Let me walk through the performance in each of our segments. Software revenue growth accelerated four points sequentially to 9% this quarter, including over four points of organic growth. This performance was driven by our high-value annual recurring revenue base, which grew 8% to $24.9 billion. Three of our four software sub-segments grew revenue double digits, led by the combination of strong new business performance and pipeline closure rates, including the successful closure of around two-thirds of the large deals that slipped from the second quarter. Our results represent the high end of the range we outlined in July, reinforcing our confidence in the strength of our portfolio. Turning to our sub-segments, Red Hat revenue grew 11% again this quarter, fueled by bookings accelerating back to the high teens. Lightwell was recently made generally available, and we have strong early demand with a pipeline that is already approaching $700 million. OpenShift is now a $2.4 billion ARR business, with growth accelerating to more than 30%. Our virtualization offering continues to scale, with nearly $800 million in contracts signed since early 2024 and about $750 million in pipeline. Data grew 20%, driven by another strong performance from Confluent, with bookings growth of about 20%. Transaction processing grew 10% in the quarter, driven by demand for this mission-critical software and strong execution against our pipeline. HashiCorp continues to perform well, growing bookings across all geographies and accelerating revenue growth sequentially. However, automation was impacted by a tougher compare. Turning to infrastructure, revenue growth accelerated to 5%, driven by 32% growth in distributed infrastructure. Storage delivered record revenue growth and continued to gain market share, with broad-based demand across FlashSystem, Storage Fusion, Tape, and IBM Z Storage. Strength across storage and power reflects the growing importance of differentiated infrastructure as clients modernize their environments, address data growth, and support AI at scale. With a sizable backlog in distributed infrastructure exiting the quarter, we are well positioned for continued momentum in the fourth quarter. z17 continues to perform exceptionally well, wrapping on the strongest start to a Z program last year. Program-to-date performance remains well ahead of the prior generation, up over $1 billion, and this quarter, we had the strongest mid-range launch in IBM Z in nearly two decades. Beyond the strength of the program, IBM mainframe clients, representing approximately 85% of installed MIPS capacity, are maintaining or growing their capacity, and aggregated installed capacity has tripled over the last few programs. Consulting revenue grew 2% this quarter, reflecting continued client demand for AI-enabled transformation. Growth was led by strategy and technology, up 4%, with strength in application modernization and data and AI transformation. While cybersecurity delivered nearly double-digit growth in intelligent operations. AI is increasingly embedded in broader transformations our clients are undertaking, representing about 30% of our consulting revenue in the quarter and 35% of our backlog. We are also expanding the ecosystem of capabilities we bring to clients, including through our new strategic partnerships with OpenAI and our expanded relationship with Google Cloud, as we help clients scale enterprise AI. Clients remain at different stages of adoption, but we continue to see them modernizing applications, strengthening their data foundations, and re-engineering workflows as they move forward toward embedding AI into core business processes at scale. Our integrated model, combining deep domain expertise, technology, and reusable assets, positions us to help clients capture business value from AI while accelerating time to value. Let me now discuss profitability. Adjusted EBITDA and operating pre-tax margins expanded by 60 and 70 basis points, respectively. As I mentioned last quarter, we accelerated our productivity initiatives to help enhance our operating profit margin and free cash flow commitments while continuing to invest for growth. We made significant progress this quarter, driving efficiencies across G&A and sales, reinforcing the power of our productivity flywheel. Segment profit margins expanded by 210 basis points in software and 120 basis points in infrastructure, driven by ongoing productivity actions. Consulting segment profit margin declined modestly as we reinvested productivity gains into digital assets Accelerating our transition towards a services as software model to capture the growing AI opportunity. Through the first nine months of the year, we generated about $8 billion of free cash flow, up about $600 million year over year, driven by about $1 billion increase in Adjusted EBITDA, offset by higher CapEx, cash taxes, and net interest expense. Our free cash flow margin for the first nine months of the year is the highest in reported history, highlighting our strong execution against productivity initiatives and laser focus on operational discipline. We exited the third quarter with a strong liquidity position and a solid investment-grade balance sheet, with cash of $11.1 billion. We returned $4.8 billion to shareholders in the form of dividends through the first nine months of the year. Our debt balance ending the quarter was $63.8 billion, including debt of $12.7 billion for our financing business, with a receivables portfolio that is almost 80% investment grade. Now, let me talk about what we are seeing going forward. The strength and diversity of our portfolio, disciplined capital allocation, and sustained productivity execution underpin our revenue growth, earnings expansion, and free cash flow performance. Through the first nine months of the year, we delivered over 4% revenue growth, 9% operating pre-tax income growth, 10% operating earnings per share growth, and 8% free cash flow growth. We continue to expect revenue growth for 2026 in the range of 4%-5% and are raising our expectation for free cash flow growth to more than $1 billion. Ninety days ago, we provided a full-year revenue growth range with profit and free cash flow expectations anchored to a 4% base case. We continue to take the same approach for the full year, anchoring profit, free cash flow, and segment expectations to that base case. Given our strong third quarter software performance, our confidence in the full-year outlook has increased. We now expect full-year software growth of approximately 7%-8%, with about 7% as the revised base case. For the full year, we expect double-digit growth in hybrid cloud, mid-teens growth in data, and low double-digit growth in automation. For transaction processing, we are raising our expectations for the full year, with growth expected to be flat. Infrastructure growth accelerated in the third quarter, with significantly stronger cycle-to-cycle TP performance of z17, underscoring the durability of the platform and the value it delivers to clients. Combined with continued strength in distributed infrastructure, we continue to expect low double-digit infrastructure revenue growth for the full year. In consulting, backlog quality and momentum in GenAI continue to support a modest acceleration to low to mid-single digit revenue growth for the year. In the third quarter, our operational discipline and accelerated productivity initiatives allowed us to enhance margins and deliver free cash flow commitments while continuing to invest for growth. These actions include deploying AI and automation at scale across our company, reducing third-party spend, improving sales and marketing efficiency, using AI to drive more efficient software development, optimizing our supply chain, and enhancing services delivery. We continue to expect 100 basis points of operating pre-tax margin expansion for the full year, reflecting the flow-through from the third quarter earnings beat and continued operational discipline. Our operating tax rate expectation for the year remains in the mid-teens. For the full year, we are raising our expectation for free cash flow growth to more than $1 billion. The primary driver of this growth will be Adjusted EBITDA, offset by higher CapEx, higher cash tax, and net interest expense. Our free cash flow continues to be driven by growth in Adjusted EBITDA and demonstrates consistent free cash flow realization of about 130% over the last few years. Let me close by saying that our third quarter performance reinforces our confidence in our portfolio, the resilience of our business model, and our outlook for the year. At the same time, we continue to invest in the technologies that will shape IBM's next chapter of growth. As Arvind mentioned, Quantum continues to advance across technology, ecosystem adoption, and scale up. While still early, the progress we are seeing from enterprise engagements to government validation reinforces our confidence in both our roadmap and the long-term opportunity ahead. We look forward to discussing in more detail at our Quantum Day in December. Arvind and I are now happy to take questions. Olympia, let's get started. Olympia McNerney: Thank you, Jim. Before we begin Q&A, I would like to mention a couple of items. First, supplemental information is provided at the end of the presentation. Second, as always, I would ask you to refrain from multi-part questions. Operator, let us please open it up for questions. Operator: Thank you. At this time, we will begin the question and answer session of the conference. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Yep. Thanks a lot. Good afternoon, everyone, and great to see some nice software acceleration here. Arvind, I think last quarter we discussed a lot about customers prioritizing infrastructure over software purchases. This quarter it seems like transaction processing is at double-digit growth while infrastructure has remained very strong for you folks. Can you just talk about what changed in customer spending priorities? Are you primarily just recovering deferred transactions at this point, or are you actually starting to see infrastructure investments starting to create more incremental demand for IBM software? With Red Hat bookings actually growing at high teens, is that an early indication that software can actually accelerate as you go into 2027? Thank you. Arvind Krishna: Amit, thanks for that question, and also thank you for observing the numbers. Let me comment on the overall customer priorities, the tie towards infrastructure and Red Hat, and I am going to ask Jim to cover the transaction processing piece a little bit. First, as we look at customer spending priorities, customer spending priorities in trying to leverage AI remain strong. As you begin to leverage it, how does the average customer get value? They have to rewrite an application, they have to modernize an existing application, and you then ask the question: where do those run? That tends to be a tailwind for Red Hat OpenShift, and I think we are at the very beginning of this cycle, so I expect that to carry on for a long time. Then the moment they get to saying, "Okay, I will write the application on Red Hat OpenShift," you then get to, how do I unlock the data from all of the enterprise data that I need to power that AI application? Remember, 90% of enterprise data is not on the cloud. It is very much inside the enterprise. So Confluent tends to be a tailwind. I expect these to carry on for a long time. The automation portfolio will get a benefit when these applications all get to scale and people start worrying about managing hundreds and thousands of them. At that point, automation will also get a tailwind. On the point you are making on Red Hat, look, we are very comfortable saying that based on what we can see, we are comfortable about double-digit growth in the fourth quarter of this year. Right now, we do not really want to comment on 2027 growth, but generally speaking, I can say when we get these kinds of booking growths, it translates into good revenue growth going forward. Jim, maybe a comment on TP. Jim Kavanaugh: Yeah, just to build on your points, Arvind, and Amit, thank you very much for the comment and the question. We are very pleased overall with our software performance. Team executed extremely well. Four points sequentially to 9% printed here in third quarter, and it was all organically driven. Pervasively across our portfolio, three of our four subcategories accelerated and grew double digits overall. That was a reflection of both, we talked a lot last quarter about the 80% high-value recurring revenue growing nicely at high single digit, but we saw a very nice rebound in our transactional business, that remaining 20%, that grew actually double digits, led by our ELAs that were up north of 20% with an NRR of north of 130% overall. That is a function of, yes, disciplined execution on slip deals, but also a function of net new business contribution in the quarter. I would tell you before all of you ask, about a quarter of it is the slip deals with regards to overall software acceleration, and about three-quarters of it is net new business that we are capturing overall, so to build on Arvind's point. Now on TP. TP, we are obviously pleased. Double-digit growth. I think this instantiates the demand for our mission-critical strategic mainframe software. A lot of discussions a quarter ago about demand destruction versus timing. I think this puts this to rest right now, because when you take a look at it, we have been talking all year long about the reinforcement of confidence we have in our mainframe platform, and how we monetize the strong z17 performance, right? That model is, the monetization model is the more capacity you put in the marketplace, the higher monetization opportunity, the higher price opportunity, the higher value creation opportunity. z17 today, installed MIPS are up high teens, 6 quarters in. Shipped MIPS are up over 100%. That is the future monetization opportunity that we feel extremely confident about as to the acceleration potential of TP in the future. So appreciate the question, and great place to start. Olympia McNerney: Operator, let's take the next question. Operator: Your next question comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you so much. Thanks for the color you just shared on TP, but maybe if we could just double-click on that. Last quarter, you were thinking that TP might be down low to mid-single digits for the second half, and you called it a 27 growth vector. It grew 10% instead. So maybe, Jim, as part of those, a quarter of software upside really came from those push deals. Could you share some color more specifically with respect to TP, if that was similar or higher in relation to the deals that closed from those push deals? And how many of those low tens of slip deals have now closed? Because you've not really changed your 4% to 5% for the year, but your commentary and your numbers would suggest that you're gravitating much more towards the higher end of that. If you could share any more incremental color. On cycle-to-cycle TP performance, is that still something that we should think of as mid-single digit? That would be great. Thank you so much. Arvind Krishna: Wamsi, I know you addressed the question to Jim, but I am going to start and then ask Jim to give a lot of color on both the slip deals, the TP performance, and the cycle-to-cycle compare, if I sort of paraphrase your question short. Let's just talk about TP. The question everybody had last quarter was, does this imply that overall demand for mainframe has gone down? We were very confident that this was a timing question, not a destruction question. At the macro level, as people deploy all of that hardware, as they deploy that MIPS, as the volumes of the underlying transactions increase, they need this mainframe software to support that mission-critical business. That is why we were confident it would come back. Now, to your point of us saying a low to mid-single digit decline, we want to be cautious and we want to be prudent. We want to see the absolute baseline, and we do not want to call above it. I think what really happened was we got not only the deferral from 2Q, we got a normal 3Q buying cycle on mainframe, so it kind of got it both together. I would be candid and tell you, I do not expect double-digit performance in TP to keep going, but I would expect to see now more normalized performance, especially going into next year, and perhaps a moderation from 3Q going into the fourth quarter. But it speaks to the underlying demand for the mainframe around resilience, around the economics, around the architecture that supports eight nines of availability. Let me point that out, eight nines of availability, but the transactions in the mainframe tend to be almost the opposite of what happens in AI. Here, you need things that are completely deterministic, that are repeatable, and that you can look at it with a financial cold eye, that they are meeting all the requirements of those kinds of transactions. There is plenty of other things that will happen on distributed infrastructure. I think in terms of the numerics, I am going to hand it to Jim to cover with you. Jim Kavanaugh: Wamsi, thanks for the question overall. Let me just kind of reiterate a little bit about where I ended the last question to Amit. When you look at the health of our software business that accelerated 4 points quarter-to-quarter, it was a function of both the high-value recurring revenue. Again, the underpinnings of that is the Red Hat strength and acceleration. It's excellent start to our Confluent acquisition. It's record performances in HashiCorp overall, and that part of the business is doing well. The transactional is where the big difference changed. Last quarter, it impacted our software growth by 4-5 points when we were down double-digit transactional. This quarter, we were up double-digit transactional, and I'll remind you, that's 20% of our software book. Annual book's about $32 billion, give or take. That today offers about two-thirds to three-quarters of that is ELAs. ELAs are strong incumbency positions that we've earned trust of our clients for decades around mainframe running their core architectures. On top of that, we build a moat and we build a software distributed business model that captures that very attractive economic multiplier of $3-$5 of software for every dollar we land on mainframe. Within that, TP is disproportionate. With that moat, we give clients flexibility on where they want to choose that ELA spend as to where it goes between data, between automation, and between TP. Red Hat's not part of our ELAs overall. What we saw here both is a contribution in the quarter on slip deals. Let's put this in perspective. We printed a number, what, $7.6 billion of software. The slip deals were tens of slip deals, so let's kind of put that in a ballpark from 2Q of, what, $400 million, which is what we missed software by. We closed two-thirds of those. That's $250-plus million. That is the 25% of the contribution of the growth that we've had of 4 points. By the way, that was disproportionate to TP. That's why you see TP well up at double digits overall. We didn't get a lot out of that in data and in automation, and some of that should be fourth quarter. Fourth quarter, we gave a guide, I think to use Arvind's word, anchored in our philosophy 90 days ago. Prudent, cautious. We're anchoring this thing at the low end, approximately 7%. By the way, put that in perspective. I think the current street estimates for the year are about $32 billion of revenue. We feel comfortable with that $32 billion of revenue. That's kind of where we're at. I think I've covered most of your questions. Olympia McNerney: Great. Operator, next question. Operator: Your next question comes from Ben Reitzes with Melius Research. Please state your question. Ben Reitzes: Hey, guys. Thanks. Appreciate the question. I wanted to ask about your long-term. The short-term puts and takes we get, but at your latest Analyst Day, you laid out that you would approach double digits in software as a long-term target. Based on what you're seeing, do you still feel confident in that? And how is M&A going to play a role in terms of achieving that? Because in order to hit it, I guess you got to accelerate a point or two after this year. A lot of folks are wondering where M&A plays in that. Thanks a lot. Jim Kavanaugh: Thanks, Ben. I appreciate the question overall. Obviously, and it's not going to surprise you, we'll spend a lot more time on this question here in January. We got the team extremely focused already. We're 21 days into arguably the most important quarter we have in a fourth quarter overall. But let me take a step back first around IBM and then as Arvind and I have been talking here, as we're heading into our planning cycle and laying out all of our investment and capital structure strategies for 2027. I'll talk a little bit about IBM, then hit your question on software. We've got a lot of confidence in our strategy, and our portfolio is well-positioned to deliver sustainable, durable growth on our model. We feel extremely confident in that. Why? We got an attractive TAM, market backdrop of technology, the diversity of our portfolio, leveraging our hybrid cloud and AI platform-centric model, our continued portfolio optimization to shift to higher growth end markets, new innovation we continue to bring to market around Lightwell, around GenAI, and around to your question, M&A growth synergies. All of that will play out. But from a segment perspective, since you asked about software, I'll give you some early indicators. One, we got a high-value recurring revenue stream that's been accelerating all year long, $25 billion ARR book of business, high single-digit growth. We execute to what our guide is here. We should be approaching double digits here in the fourth quarter on that 80% high value. That's one critical indicator. Two, new innovation we're bringing to market. We're extremely excited, to Arvind's point, around Red Hat, the acceleration to high teens growth. We've got $700 million worth of pipeline on Lightwell alone in front of us right now with a trillion-dollar TAM opportunity around open source vulnerabilities. We got virtualization, a tremendous opportunity. We got hybrid cloud containerization opportunity. So we feel pretty good about the markets we're in, the investment in the portfolio that we have built up overall. Three, we got 2027's year growth synergies, right? 2026 was about integrating and getting Confluent into our mode of operation and go to market and scale. 2027's around the growth synergies. Finally, to the TP question. We've got high teens growth in installed MIPS out in the marketplace. Last 5 years, our MIPS are up 2X. Last 10 years, our installed MIPS are up 10X. That is the monetization vehicle at TP, and Arvind talked about it, I talked about it. We think that's a growth acceleration back to our model overall. We'll quantify that in January, but that gives you a little bit of perspective of our early thinking about 2027 on software and IBM. Olympia McNerney: Great. Operator, let's take the next question. Operator: The next question comes from Raimo Lenschow with Barclays. Please go ahead. Raimo Lenschow: Perfect. Two quick ones if I may. First, congrats on the software performance. On data, 20% growth, obviously some of that is Confluent, but what are you seeing there on upsell or cross-sell on Confluent? You have it for a few quarters now, but that looks like it is starting to click for you. Can you kind of double-click on that one? Then one for Jim. Gross margins came up with investors. Can you just give us a comment there, what drove the performance there? Thank you. Arvind Krishna: Raimo, thanks for the question, and thanks for noticing the data growth. If I look at Confluent, I actually want to broaden it. There is Confluent, which is important for moving data in real time, allows data to remain in place but still be available for AI. Coupled to that are what are called lake houses, and we are very excited about the upcoming cross-sell opportunity with Streamhouse, which is also another way to store data that is sort of in flight. The Confluent piece unlocks your data, be it inside the enterprise, be it in an application, be it in a SaaS application, be it on a cloud, but still have it completely available for AI agents as well as for inferencing. Really important capability, and you saw that growth pull through. Lake houses are also important as people are beginning to cleanse their data for leverage in AI, and we saw growth there also. We are excited about what is going to come with the capability we are about to announce in a couple of weeks around the Streamhouse, which is also then going to be directly a cross-sell and upsell on top of Confluent. Unlocking data for AI, making sure that you do not have to create multiple copies because that creates a lot of extra cost, but still have it available as quickly as you need it, is the fundamental capability we believe is going to be unlocked in the enterprise leveraging all of these capabilities, and that contributes to the overall growth there. Jim, I'll give it to you for the gross margins question. Jim Kavanaugh: Raimo, thank you very much for noticing the operating leverage engine that we've been driving across this company. You look at what the last four years were probably up, what about 1,000 basis points of operating leverage across this company. By the way, that has delivered high-quality, sustainable cash generation. Over the last four years, our cash is up roughly $7 billion of growth and 700 basis points of free cash flow margin on that 1,000 basis points of operating leverage. When you look underneath it, we continue to improve the structural competitiveness of this business model. We still believe we got a lot of headroom here. When you take a look at our profit earnings up double digits, our operating margins are up 70 basis points. It's delivered by, we are driving, in the third quarter, 500 basis points of gross productivity in our model. We've always said in our model, about a third is for margin protection, about two-thirds enables us to drive that productivity flywheel where we reinvest back into the business around R&D, innovation, go-to-market model ecosystem to drive that flywheel of growth and competitive advantage. 500 basis points is well above what our model is overall. How are we doing that? We're running our playbook. That playbook, we believe, has headroom. It's reimagining everything between Arvind and myself about how we execute and run this company. That gets into leveraging data, a whole new way of workflow reimagination, embedding technology, digitization, AI into our company. We've been talking about in prepared remarks, how do you reimagine a whole new way for software development? How do we reimagine a whole new way on go-to-market models? How do we redesign the G&A structure, the way we run our company? I think there's a lot of headroom there. A few years in, we are now north of $5.5 billion of productivity out of this company. That is a great flywheel for investment flexibility and capability. So most important thing is it provides that free cash flow generation engine, and it applies that investment flexibility so we can continue to compete both organically and inorganically to invest. Olympia McNerney: Operator, next question, please. Operator: Your next question comes from Brent Thill with Jefferies. Please state your question. Brent Thill: Thanks. Arvind, I am curious in some of the deals, maybe early in the year, there was a little bit of an AI bright light. "I do not know what to do. I need to kind of wait, investigate." And maybe the investigation period went on, and they realized maybe some of the systems could not actually achieve what the claims were. I am curious if you are maybe seeing some element of this in some of the deals recouping where the claims were big, but perhaps the reality was not matching the claim, and you are able to deliver on that. Is that something you have seen, or is that not a scenario that you have experienced? Arvind Krishna: Brent, let me make sure I parse the question correctly, but I am going to sort of maybe answer it in my own words. I think what we are seeing is that at least larger enterprises are becoming a lot more cognizant and a lot more aware of what is the true ROI of all of their AI spend. They are also getting worried if some of the AI spending completely out of control with no real return. But the way I have always characterized it is, there is no question to us, and this is the advice I give every C-suite member that I meet, that what we are trying to give people on AI, the productivity, the advantages of AI, the way it is going to change work, is very real. Let me not make any confusion around that. That said, a lot of people are underplaying how much work it is to integrate AI into your workflows, to fundamentally sit back and say, "How do I redesign the workflow to take advantage of AI?" It is not a little RPA tool that you bolt on, and you get something. If you do not spend the time and energy to redesign your workflow, you are not going to get the full benefit. If you are willing to do that, there is a huge benefit to be had. But that implies you have got to pick a few, you have got to learn how to scale them for full impact across the enterprise, and do not do 100 little experiments where you then do not have enough investment to get them to scale. That is what I think we are seeing. I think what we are seeing, Brent, is now enterprises, as they are getting mature, as they are stopping the experimentation, are saying, "All right, who can help me get through this bigger piece of workflow design as well as integration into our existing systems?" Because you are not likely going to throw out your ERP system. How do you leverage it, but still get the benefits of AI? Then they are picking their partners in terms of which software are they willing to trust to do this, which people have the knowledge to come do this with them? As well as, can you be really efficient about your token spend as opposed to leave it completely uncontrolled? I agree, I think, with your thesis, but maybe a slight redirection in terms of why we are seeing that change. Yes, that is a tailwind for us. That is why I kind of repeat what I said at the beginning. That is why OpenShift, Confluent, Mainframe with fraud, are all seeing the benefits of that play go on as we are proceeding down this path. Great. Operator, let us take the next question. Operator: The next question comes from Fatima Boolani with Citi. Please state your question. Fatima Boolani: Good afternoon. Thank you for taking my question. I wanted to go back to the discussion around transaction processing, simply because it was such a remarkable sequential recovery in that franchise. Jim, I understand so much of that is piggybacking off of the ELA momentum that you regained in the quarter from the transactional side of the business. I am curious if you can help us unpack a little bit more on that strength. I think you talked about a high teens growth in MIPS shipped. Wondering if you could unpack and break down for us the quantity and shipped MIPS growth in some of those slip deals, because those were existing customers. To the extent you have been able to leverage a little bit of pricing power in this situation, because I know that is not historically a lever that you have used. Would love to get a little bit more second-order detail on that transaction processing slope of recovery between the quantity and quantity growth as well as pricing uplift. Thank you. Jim Kavanaugh: Okay. Thanks, Fatima. Appreciate the question. Let us double-click back down on TP. First, let me just reiterate, what is the monetization model, right? TP is transaction processing that runs a mission-critical software on top of the most enduring platform, that being mainframe. By the way, as we have talked about many times before, mainframe runs 70% of the industry's transaction volumes in terms of value. 45 of the top 50 banks, four of the five top airlines, seven of the top 10 retailers around the world. I think 75%, 78% last number I have seen of the Fortune 100 run mainframe as a core architecture. TP is the core mission-critical software that enables the most secure, reliable, and scalable platform around. The way we monetize that value is the more capacity out there, the more opportunity to monetize value, the more opportunity to monetize price, the more opportunity to monetize value creation of TP. When you take a look at our last two or three cycles, we run 145 million MIPS around the world. Some of those are standard MIPS on the platform, some of those are new Linux specialty MIPS, new cloud-native applications, which is why the mainframe has been a growth vehicle over the last two to three cycles overall. That 145 million MIPS, our z17 six quarters in, 125%, the highest recorded program to date, above z16, which was the prior highest program to date. We are up, I think, 18% shipped MIPS through six quarters. We are up over 100% of shipped MIPS. Why do I differentiate between the two? Read the first one as consumption, capacity, and workload. We can monetize value immediately. The second is the opportunity. It is the TAM, right, and us driving workloads on that. When you take a look at it, that is what has been driving the step function change and growing meaningful over time. It was only a handful of years that our TP portfolio was down, what, mid-single digit, high single-digit growth. We then stabilized that growth about four years ago, and then through z16, we saw an acceleration. I will reiterate. That z16, when you look at the launch year, it was about flat the launch year, then it kind of went up to about mid-single digit year plus one, and then it went up to high single digit year plus two. Right now in z17, we were about flat launch year. We got different dynamics playing out right now, so we are about prudently cautious, calling flat for the year. With 100% shipped MIPS and 18% installed MIPS, I would say that is a pretty good future monetization opportunity in 2027 going forward. Olympia McNerney: Great. Operator, let us take the next question. Operator: Your next question comes from Brian Essex with J.P. Morgan. Please state your question. Brian Essex: Hi, good afternoon. Thank you for taking the question, and congrats on the software acceleration from me as well. Arvind, I caught the prepared remarks, or at least some of the news remarks that you had about clients deploying super intelligence in ways that transform entire operating models. I appreciate that's more than just increasing operating efficiency. The question I have for you is, as your customers assess those transformation efforts, how focused are they on sovereign AI? Is that becoming a more meaningful part of your conversations? How are you seeing your customers focus on the protection of their data and IP as they assess how they deploy AI for their transformation efforts? Arvind Krishna: Brian, thank you first for the question, and thank you for noticing the precise words I did use in the prepared remarks. To get to sovereign AI, sovereign AI is definitely becoming a much larger conversation. While we have talked about it for the last year and a half, I would not tell you that in 2024 it had much traction. In 2025, a few people began to pay some attention, and in 2026 it is now beginning to pick up. Let me explain for everybody else exactly what we mean by that. If you are going to use a large public LLM, effectively while they're certainly not stealing your data, though they're implicitly maybe learning what kind of questions are asked. There are traces left in the underlying logs and so on that are not the full, but that do give some indication of what all it is being used for, as well as some elements of the data that is being used. Sovereign becomes how do you make sure that none of that happens? People are turning now to two kinds of answers. That is why I think there is such a big boom in AI infrastructure on-premise, and we can see some of the companies that benefit from that. But so will we in our mainframe with our Spyre cards as time goes on. The other part of this is what is driving the boom behind open-weight models. Because there you have the permission and the IP rights to run them on either on-premise infrastructure or on private clouds where the enterprise controls what is happening to the underlying logs and data. That is definitely what is happening there, and we can see that. The boom behind some of the companies that are creating open-weight models is also increasing behind that. I'll reflect on a conversation I had with a large bank CEO. In this case, it was outside the U.S., but it's a very large and friendly country, and their view was, "Look, we'll do some early experiments on the larger frontier LLMs. But for what we are doing inside the bank, we need to run it in a way that is sovereign, meaning nobody can take any of the underlying data or underlying logs that are there. I was talking to somebody who does trading and they are on, "We are not going to expose our underlying proprietary models or anything outside, but we need to run this in a sovereign way." I believe this is going to turn into a tailwind for many players in the industry, certainly the infrastructure and semiconductor players, but also for those of us who help enterprises deploy in a secure and in a private way. Olympia McNerney: Great. Operator, let us take one last question. Operator: Thank you. Our last question comes from Matt Swanson with RBC Capital Markets. Please state your question. Matt Swanson: Great. Thank you. Maybe this is just a natural follow-up to what Brent Thill was asking. You had mentioned earlier that what AI costs and who controls it have been the two primary questions that enterprises start off with you. Who controls it obviously fits right into that sovereign AI conversation. Could you just talk a little bit about how people are addressing the trade-offs, if there are trade-offs between those two segments, and how they are architecting their networks in order to maximize for both those things, and just how symbiotic they can be? Arvind Krishna: Matt, thanks for that question, and also allowing me to give a bit more detail on this topic. If I go back to late 2024, the difference between the most advanced model, which let's acknowledge is mostly a frontier LLM model, and alternate models, was a 2 is to 1 or 3 is to 1 gap. Meaning if you ran some assessment, some benchmark, and it was broad-based, not narrow, the top model might score a 70, and the open model might score a 20 or a 30. You've got to react with, that's a lot of capability we're giving up, and we all know that performance, in some sense, outcome for the enterprise, is highly dependent upon that. That's too big a gap. Nobody's going to accept that. In late 2025, we began to see that gap shrink, where maybe the gap was not 70 to 20 or 30, it was 70 to 50. But when you looked at those curves and you looked at the improvement, and you looked upon the sequential improvement, we were very comfortable that we'd get this to probably 100 for the top and 90 for the alternate model. Now the question becomes: how do you do that? Now, the question that the enterprise struggles with is: where are my kernel engineers? Where are the people who worry about the underlying network? Who can make sure that the model is clustered on GPUs that are close to each other in network proximity? Who can make sure that you're doing the right caching of results so you get an incredible response? I'm telling you that gap is probably still there, except for the most sophisticated enterprise. Then you go to, "All right, I got it, that the answer is four times more expensive," but it's the easy answer. As those of us who work in this world produce much more easy button software that can give you that capability for the alternate models. And I would say it's not a huge amount of infrastructure. Our computation is that for an average large enterprise, you can get going with maybe two or three racks, which is not a huge amount of infrastructure, but it gives you the ability to run those open-weight models. Currently, anywhere from 25% to 10% of the token cost of the frontier models. That is very attractive given that they're now 90% as effective. It's a simple question for any enterprise. Would you like something that's 10% of the cost if it's 90% as good as the best, or do you want to pay that 10 times higher cost? Then the question is: how many tasks require that? I would tell you some do, but the vast majority, summarizing an email, examining a contract, answering a customer call, composing an email, all of those can be done as well with the much cheaper answer, and that is what is going to drive a lot of this. Matt and everybody else, thank you for those questions. Look, we are pleased with our performance this quarter and all our segments' accelerated growth. Our portfolio strength, disciplined execution, and relentless focus on productivity reinforce my confidence in our trajectory. I look forward to sharing our progress with you as we close out the year, and we will talk to you in January about that. Olympia McNerney: Thank you, Arvind. Operator, let me turn it back to you to close out the call. Operator: Thank you for participating on today's call. The conference has now ended. You may disconnect at this time. Before you buy stock in International Business Machines, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and International Business Machines wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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