International Business Machines Corp (IBM) Q4 2025 Earnings Call Highlights: Record Revenue …

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• Revenue Growth: 6% for 2025, highest in many years; 9% in Q4, highest in over three years.

• Free Cash Flow: $14.7 billion in 2025, highest in over a decade.

• Software Revenue: Grew 9% in 2025, highest annual growth rate in history; 11% growth in Q4.

• Infrastructure Revenue: Grew 17% in Q4, driven by z17 performance.

• Consulting Revenue: Grew 1% in Q4, with a generative AI book of business over $10.5 billion.

• Operating Pretax Margin Expansion: 100 basis points in 2025.

• Adjusted EBITDA Growth: 17% in 2025.

• ARR (Annual Recurring Revenue): $23.6 billion, up over $2 billion from 2024.

• Operating Gross Profit Margin: Highest in reported history for 2025.

• Debt Balance: $61.3 billion at year-end 2025.

• Cash Position: $14.5 billion at year-end 2025.

• Dividends Returned to Shareholders: $6.3 billion in 2025.

• 2026 Revenue Growth Expectation: 5%-plus in constant currency.

• 2026 Free Cash Flow Growth Expectation: Up about $1 billion year over year.

Release Date: January 28, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

• International Business Machines Corp (NYSE:IBM) achieved 6% revenue growth in 2025, marking its highest level of revenue growth in many years.

• The company generated $14.7 billion in free cash flow, the highest level of cash generation in over a decade.

• Software now represents approximately 45% of IBM’s business, up from about 25% in 2018, with a 9% growth rate, the highest annual growth rate in history.

• IBM’s infrastructure segment delivered a robust quarter with a 17% growth, driven by the strength of the z17 platform.

• IBM’s cumulative Gen AI book of business stands at over $12.5 billion, with significant contributions from both Software and Consulting.

• Red Hat’s growth decelerated to 8%, partially due to the wrap on last year’s elevated consumption-based services and delays in US federal business deal activity.

• Consulting revenue grew only 1% in the fourth quarter, reflecting a slower pace compared to other segments.

• IBM anticipates absorbing about $600 million of dilution from the Confluent acquisition in 2026, driven largely by stock-based compensation and interest expense.

• The infrastructure segment is expected to see a low-single-digit decline in revenue in 2026 due to product cycle dynamics.

• IBM faces challenges with higher cash taxes, increased investments in CapEx, and higher net interest expenses impacting free cash flow.

Q: Arvind, good to see the comment around Software growth accelerating to double-digit growth this year. Can you dig into the components and why you’re excited for that organic-led initiative? A: Arvind Krishna, CEO: We are pleased with the organic growth in Software and the inorganic contribution. Automation is on a secular demand increase due to the need for software to manage infrastructure and AI. Data benefits from our products and partnerships, and Red Hat continues to grow, with OpenShift running at a 30% growth rate. We expect Software to grow 10% this year, assuming a midyear closing for Confluent.

Q: What drove the better performance in free cash flow in 2025, and what are the expectations for 2026? A: James Kavanaugh, CFO: We exceeded our free cash flow guidance due to strong revenue growth and operating leverage, achieving $14.7 billion, up 16%. For 2026, we expect $15.7 billion in free cash flow, driven by high-single-digit growth in adjusted EBITDA, despite headwinds like higher cash taxes and CapEx.

Q: How do you plan to bridge Red Hat’s growth to meet your forecast, given the current 8% growth rate? A: James Kavanaugh, CFO: We expect Red Hat to contribute to double-digit Software growth, driven by subscription revenue under contract growing mid-teens and OpenShift’s 30% growth rate. We are being prudent with Red Hat’s guidance due to recent disruptions but see potential upside.

Q: Are you anticipating any potential pressure on the server refresh cycle from higher memory pricing, and how will this affect Red Hat Enterprise Linux? A: Arvind Krishna, CEO: While memory prices are high, AI demand drives server demand, which benefits Red Hat. We don’t expect memory pricing to be a headwind for hybrid cloud or Linux, as market share is shifting towards Red Hat, and AI offerings like Red Hat AI and OpenShift AI are gaining traction.

Q: Can you outline the path for Consulting business growth in 2026, given the current backlog and AI momentum? A: James Kavanaugh, CFO: We expect low- to mid-single-digit growth in Consulting, supported by a $32 billion backlog and strong Gen AI momentum, which now represents over a third of our bookings. We also anticipate margin improvement through productivity and portfolio mix.

Q: With the strong performance in Z, could there be more sustainability in the infrastructure business than currently guided? A: Arvind Krishna, CEO: We provide guidance with high confidence. The mainframe’s strong adoption is driven by demand for on-premise control, improved developer tools, and AI capabilities. While we expect some cycle dynamics, AI capabilities on the mainframe could provide tailwinds.

Q: How do you view the current state of enterprise transformation for Gen AI, considering your dual pillars of AI and hybrid cloud? A: Arvind Krishna, CEO: Gen AI has been consumer-focused, but enterprises will increasingly demand private or on-premise AI solutions for privacy and sovereignty reasons. We expect 50% of enterprise AI usage to be on-premise in three to five years, with the mainframe playing a key role.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.