IBM’s $9.5 Billion AI Pipeline Fuels Q3 Growth Across All Business Segments

AI Momentum Drives IBM’s Strong Quarterly Performance

IBM has reported substantial third-quarter growth across its entire portfolio, with artificial intelligence emerging as a key driver of demand for software, consulting, and hardware offerings, according to the company’s latest earnings report. The technology giant revealed that its generative AI book of business has reached approximately $9.5 billion, representing a significant increase from the $7.5 billion reported in the previous quarter.

AI Momentum Drives IBM’s Strong Quarterly Performance
Financial Performance Exceeds Expectations
Raised Outlook for 2025
Segment Performance Highlights
Mainframe Renaissance Driven by AI Capabilities
Storage Portfolio Benefits from AI Demand
Market Position and Future Outlook

Financial Performance Exceeds Expectations

IBM posted quarterly revenue of $16.33 billion, marking a 9 percent year-over-year increase from $14.97 billion in the same period last year, according to the financial results. Net income for the quarter reportedly reached $1.74 billion, or $1.87 per share, a substantial improvement compared to the $330 million loss recorded one year earlier.

Senior vice president and CFO James Kavanaugh stated during the earnings call that the company “exceeded our expectations on revenue, profitability, adjusted EBITDA earnings per share and free cash flow, reflecting the strength of our portfolio and the disciplined execution across our business.”

Raised Outlook for 2025

Based on the strong quarterly performance, IBM has raised its financial outlook for the full year 2025, with sources indicating the company now expects revenue growth of more than 5 percent and approximately $14 billion in free cash flow. This optimistic projection comes despite broader economic uncertainties affecting the technology sector.

IBM President and CEO Arvind Krishna emphasized that “AI adoption is accelerating and hybrid cloud remains the foundation of enterprise IT,” noting that these trends align well with IBM’s core business portfolios. He added that the company‘s results across revenue, profit and cash flow exceeded expectations “with all of our segments accelerating sequentially.”

Segment Performance Highlights

Software Division: IBM’s software revenue reached $7.2 billion for the quarter, representing a 10 percent year-over-year increase. The report indicates particularly strong performance in automation revenue, which grew 24 percent, and hybrid cloud revenue through Red Hat, which increased 14 percent.

Consulting Services: Contrary to market concerns about potential flat performance, consulting revenue grew 3 percent to $5.3 million, with intelligent operations revenue increasing 5 percent and strategy and technology revenue rising 2 percent. The generative AI consulting services book of business alone accelerated to $1.5 billion in the third quarter, according to company executives.

Infrastructure Business: Infrastructure revenue demonstrated the strongest growth at 17 percent, reaching $3.6 billion. This included a remarkable 61 percent surge in IBM System z mainframe revenue, driven by the company‘s latest mainframe refresh cycle. Distributed infrastructure revenue grew 10 percent, while hybrid infrastructure revenue increased 28 percent.

Mainframe Renaissance Driven by AI Capabilities

Analysts suggest that IBM’s mainframe business is experiencing a resurgence due to its enhanced AI capabilities. Kavanaugh noted that “IBM z delivered its highest third-quarter revenue in nearly two decades…fueled by the early success of our z17 platform [that’s] purpose built for AI and hybrid cloud with breakthrough capabilities in real-time inferencing, quantum-safe security and AI-driven operational efficiency.”

Krishna elaborated on the technical capabilities, stating that “a fully populated single system is capable of doing 450 billion inferences per day. As clients purchase that capability, that will be both a further accelerant to mainframe infrastructure growth, but it also comes with a software stack that helps them do all of that inferencing.”

Storage Portfolio Benefits from AI Demand

The company’s storage business is also positioned to benefit from the AI boom, according to the earnings discussion. Krishna noted that “as many people have realized, you need a lot of storage to be able to do model training, and we are going to be beneficiaries of that inside our storage portfolio.”

Market Position and Future Outlook

Despite the positive earnings report, IBM shares were reportedly trading around $268.76, down approximately 6.5 percent from the previous close. However, company executives expressed optimism about future prospects.

Kavanaugh stated that “we’re operating in an attractive TAM [total addressable market] and a positive backdrop. From a technology perspective, overall, we feel very good about technology being a source of competitive advantage, and you’re seeing that play out in areas around hybrid cloud modernization, around AI, around automation, in many areas.”

Krishna added that he expects IT budgets to “stay healthy” into 2026 as organizations continue to leverage technology for competitive advantage and operational efficiencies.