IBM (IBM) Q4 2025 earnings summary

Executive summary

• Achieved 6% revenue growth in 2025, reaching $67.5B, and $14.7B free cash flow, both the highest in over a decade, with double-digit growth in Software and Infrastructure and robust adoption of next-gen mainframe platforms.

• Software now represents 45% of business, up from 25% in 2018, with 9% annual growth and three sub-segments at double-digit growth; generative AI book of business surpassed $12.5B.

• Infrastructure revenue up 17% in Q4, driven by IBM Z, which had its best annual revenue in 20 years and record quarterly performance.

• Consulting returned to growth in the second half, with GenAI book of business surpassing $12.5B and Intelligent Operations up 3%.

• Exceeded all target metrics for revenue, profitability, and free cash flow set at Investor Day.

Financial highlights

• FY25 revenue was $67.5B, up 6%; Q4 revenue reached $19.7B, up 12% year-over-year; free cash flow was $14.7B, up 16% year-over-year.

• Adjusted EBITDA grew 17% to $19.2B; operating diluted EPS rose 12% to $11.59; net income for Q4 was $5.6B, up 91% year-over-year.

• Operating pre-tax margin expanded by 100bps; gross profit margin for FY25 was 59.5%, up 1.7 pts.

• ARR was $23.6B, up over $2B from 2024.

• Segment profit margins expanded: software +100bps, consulting +180bps, infrastructure +450bps.

Outlook and guidance

• 2026 guidance: over 5% constant currency revenue growth, ~$1B increase in free cash flow, and 1 point operating pre-tax margin expansion.

• Software expected to grow 10% in 2026, led by organic growth and M&A synergies.

• Consulting revenue to accelerate to low- to mid-single digits, with GenAI backlog penetration over 25%.

• Infrastructure revenue expected to decline low single digits due to product cycle dynamics.

• Confluent acquisition expected to close mid-2026, with $600M dilution in 2026, accretive to EBITDA in year one and free cash flow in year two.