Key takeaways
- IBM beat Q3 earnings expectations, reporting $17.1 billion in revenue
- IBM stock reversed earlier gains and fell as much as 5% in after-hours trading
- The company also raised its full-year free cash flow outlook
IBM shares experienced a sharp reversal in after-hours trading on Wednesday despite the technology giant reporting stronger-than-expected third-quarter earnings and raising its full-year free cash flow outlook.
The company reported quarterly revenue of $17.1 billion, up 5% year over year and ahead of Wall Street's $16.82 billion forecast. Adjusted earnings per share (EPS) reached $2.95, exceeding analysts' expectations of $2.86.
Press release from IBM
However, the earnings beat was not enough to prevent volatility in IBM stock.
IBM Stock Reverses Gains After Earnings Release
IBM stock climbed 3.94% during Wednesday's regular trading session, closing at $251.46 ahead of the earnings announcement.
Shares initially rallied even more after the release, with some reports showing gains of more than 6% in extended trading. However, the stock subsequently reversed direction, and fell by as much as 5.11% in later after-hours trading.
The selloff suggested investors were still cautious despite IBM beating earnings expectations, particularly after the company's disappointing second-quarter performance.
IBM shares already came under pressure earlier this year, with weaker-than-expected second-quarter results raising concerns about slowing software demand and delayed customer deals.
IBM Software Revenue Jumps 8% as AI Demand Grows
Software was a major growth driver for IBM during the third quarter, with revenue increasing 8% year over year to $7.8 billion. Infrastructure revenue increased 4% to $3.7 billion, while consulting revenue remained flat at $5.3 billion.
IBM CEO Arvind Krishna pointed to growing enterprise adoption of advanced artificial intelligence technologies, and said customers were using AI to transform their operating models rather than simply experimenting with individual applications.
IBM Raises Cash Flow Outlook but Keeps Revenue Guidance Unchanged
After the earnings beat, IBM raised its full-year free cash flow outlook, and forecasted an increase of more than $1 billion compared with 2025. However, the company maintained its expectation for full-year revenue growth of 4% to 5% at constant currency.
IBM also increased the lower end of its software growth forecast, now expecting expansion of 7% to 8% for 2026.
Despite the improved outlook, the stock's volatile reaction proves that there is still lingering uncertainty over whether IBM can sustain its recovery.
