IBM reported stronger-than-expected results for the quarter ended December 31, with revenue and adjusted earnings beating consensus estimates as customers accelerate upgrades to software stacks to support data-heavy artificial intelligence projects.
The company posted December quarter revenue of $19.69 billion, above the $19.23 billion average estimate compiled by LSEG. Adjusted earnings per share were $4.52, topping the $4.32 per-share estimate. IBM shares rose nearly 6% in extended trading following the results.
Software and AI momentum
IBM said its software segment generated $9.03 billion in sales for the quarter, ahead of the $8.77 billion estimate. Within that segment, the Automation unit delivered 18% growth and the Data unit grew 22% during the quarter. The company also reported its AI book of business expanded to $12.5 billion in the quarter, an increase of $3 billion from the prior quarter.
Executives attributed the strength to companies investing in upgraded software suites and platforms to underpin AI initiatives - a theme that helped sales for IT service and software providers broadly, according to the company’s reporting.
Hybrid cloud performance and government impact
Growth in IBM’s higher-margin hybrid cloud business, operated under the Red Hat brand, slowed to 10% in the fourth quarter. That was down from 14% growth in the third quarter and 16% in the second quarter. IBM Chief Financial Officer Jim Kavanaugh said the deceleration was partially the result of the longest U.S. government shutdown in history, which occurred in the last quarter of 2025.
"The shutdown hurt Red Hat growth by 'a couple points'," Kavanaugh said, noting that the federal government accounts for roughly 15% of the company’s hybrid cloud bookings.
Kavanaugh also flagged the prospect of a new federal funding impasse, saying the federal government appeared headed for a partial shutdown this week amid a standoff between Republicans and Democrats over funding for the Department of Homeland Security. "We’re going to have to deal with that as we move forward. Hopefully that is a short-term disruption," he said, adding that the company would watch how budget resolutions progress and the impact on business.
Consulting and dealmaking
IBM’s consulting segment reported sales of $5.35 billion, a touch below the $5.38 billion estimate compiled by LSEG. Management indicated that clients are prioritizing spending on longer-term AI projects amid macroeconomic uncertainty, a dynamic that influenced consulting revenues in the quarter.
On the corporate development front, IBM has been expanding its software capabilities through acquisitions to better serve AI adopters. The company completed a $6.4 billion acquisition of HashiCorp and is pursuing an $11 billion purchase of data infrastructure company Confluent, moves it says will bolster its software portfolio for AI workloads.
Market and investor takeaway
Overall, IBM reported a quarter in which software and AI-related revenue gains counterbalanced headwinds in hybrid cloud growth tied to government spending disruptions. The company’s sequential increase in AI-related business and the outperformance in software revenue were central to beating analysts’ forecasts, even as consulting lagged slightly below expectations.
Separately, promotional materials accompanying the financial coverage referenced a third-party product called ProPicks AI that evaluates companies, including IBM, across a range of financial metrics. That material described the tool’s approach to identifying investment ideas but did not change the company’s reported financial results.