IBM (IBM) Q4 2025 earnings summary

Executive summary

• Achieved 6% revenue growth in 2025, the highest in many years, and $14.7B free cash flow, the highest in over a decade, exceeding all target metrics for revenue, profitability, and free cash flow set at Investor Day.

• Software now represents 45% of business, up from 25% in 2018, with 9% annual growth and three sub-segments at double-digit growth.

• Infrastructure revenue up 17% in Q4, driven by z17, which had its best annual revenue in 20 years and a 61% YoY increase.

• Consulting returned to growth in the second half, with GenAI book of business surpassing $12.5B inception-to-date.

• Strong execution in hybrid cloud, AI, and mission-critical infrastructure, with resilient client demand.

Financial highlights

• Q4 2025 revenue reached $19.7B, up 12% year-over-year; FY25 revenue was $67.5B, up 8%; free cash flow reached $14.7B, up 16% year-over-year.

• Adjusted EBITDA grew 17% to $19.2B; operating diluted EPS grew 12% to $11.59.

• Operating gross profit margin expanded by 170bps; adjusted EBITDA margin by 230bps; operating pre-tax margin by 100bps.

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

• 4Q25 net income was $5.6B, up 91% year-over-year; full-year net income was $10.6B, up 76%.

Outlook and guidance

• 2026 guidance: 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, recurring revenue, GenAI, 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 in 2026 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.