International Business Machines (NYSE:IBM) executives highlighted a year of accelerating growth and record cash generation during the company’s fourth-quarter 2025 earnings call, pointing to strong performance across Software and Infrastructure and outlining expectations to sustain momentum into 2026.
2025 results: Higher growth and record free cash flow
Chairman and CEO Arvind Krishna said IBM delivered a “strong performance” in 2025, citing 6% revenue growth—which he called the company’s highest level of revenue growth in many years—and $14.7 billion of free cash flow, IBM’s highest cash generation in more than a decade. Krishna emphasized IBM’s continued repositioning into a “software-led hybrid cloud and AI platform company,” noting Software is now approximately 45% of the business, up from about 25% in 2018.
Fourth-quarter performance: Broad-based growth led by Software and Z
In the fourth quarter, IBM reported 9% total revenue growth, which Krishna said was the highest in more than three years. Software revenue growth accelerated to 11%, driven by what management described as a diversified portfolio and a strong recurring revenue base.
Kavanaugh highlighted Software annual recurring revenue (ARR) of $23.6 billion, up more than $2 billion from the end of 2024. Within Software, IBM cited:
- Data revenue up 19%, which management linked to demand for generative AI products and performance with strategic partners.
- Automation revenue up 14%, including what Kavanaugh called another record bookings quarter for HashiCorp.
- Red Hat growth of 8%, which management said reflected the wrap of elevated consumption-based services from last year and delays in U.S. federal business deal activity related to a government shutdown.
Infrastructure revenue grew 17% in the quarter. IBM said hybrid infrastructure was up 24%, while infrastructure support declined 2%. IBM Z revenue increased 61% year-over-year in the quarter, with Kavanaugh calling it IBM Z’s highest fourth-quarter revenue in more than two decades. Krishna said the current z17 launch has been “outpacing z16 performance,” and cited z17’s ability to process 50% more AI inferencing operations per day than z16 and to bring real-time inferencing inside IBM Z.
Consulting revenue increased 1% in the fourth quarter. IBM said Intelligent Operations was up 3%, while Strategy and Technology was stable. Management pointed to rising demand for AI services, particularly as clients move beyond experimentation and seek help designing, deploying, and governing AI at scale.
AI traction, partnerships, and productivity initiatives
IBM executives repeatedly returned to AI as both a demand driver and a productivity lever. Krishna said IBM’s cumulative generative AI “book of business” reached over $12.5 billion, with more than $2 billion in Software and more than $10.5 billion in Consulting, and both posting their largest quarterly increase to date. Kavanaugh added that IBM will stop reporting the GenAI book of business as a separate metric after this quarter because AI is now “embedded across our business.”
Krishna said IBM’s approach spans Consulting, watsonx, its agentic platform Orchestrate, and Red Hat AI, and that clients can use IBM’s Granite models, third-party models, or open models. He also described Project Bob, an AI-based software development system used by more than 20,000 IBM employees, with reported average productivity gains of 45%.
On productivity savings, Krishna said IBM set a goal in 2023 to achieve $2 billion of savings exiting 2024, and is “well ahead” of that, exiting 2025 with $4.5 billion of annual run-rate savings. Kavanaugh later said IBM expects an additional $1 billion of productivity savings in 2026, reaching $5.5 billion of annual run-rate savings by the end of 2026.
Krishna also pointed to partnerships announced or expanded with AMD, Anthropic, AWS, Microsoft, OpenAI, and Oracle, and highlighted a Red Hat and NVIDIA partnership intended to help enterprises deploy AI-accelerated applications across environments with unified automated infrastructure.
Confluent acquisition, 2026 outlook, and segment expectations
IBM management discussed the company’s announced intent to acquire Confluent, framing it as a strategic addition to unify hybrid cloud and automation through a “smart data platform” that can unlock real-time value of data for applications and AI agents. Kavanaugh said IBM expects the deal to close by the middle of 2026.
For 2026, IBM guided to 5%+ constant-currency revenue growth and free cash flow up by about $1 billion year-over-year to $15.7 billion. Segment expectations outlined on the call included:
- Software growth of about 10% for 2026, supported by organic growth, recurring revenue, GenAI traction, M&A synergies, and monetization tied to record IBM Z placement.
- Consulting growth accelerating to low- to mid-single digits, supported by backlog and GenAI momentum; Kavanaugh said backlog was $32 billion, up 2%.
- Infrastructure revenue down low single digits for 2026, with IBM citing product cycle dynamics after the z17 launch (and about a 0.5-point impact to IBM overall).
Kavanaugh also provided detail on Confluent-related dilution, saying IBM anticipates absorbing about $600 million of dilution in 2026, largely from stock-based compensation and interest expense. He said IBM expects Confluent to be accretive to Adjusted EBITDA within the first full year and to free cash flow in year two post-close, and expects to realize about $500 million of operational spend run-rate synergies by the end of 2027.
During Q&A, Krishna addressed questions about sustainability in mainframe demand and AI workloads, citing factors such as unit-cost economics, sovereignty and on-premise control needs, modernization via Watson Code Assistant for Z, and the rollout of on-platform AI inferencing capabilities. He also said he expects memory pricing pressure to persist due to dynamics in the server market, but did not expect it to be a headwind to IBM’s hybrid cloud or Linux growth.
About International Business Machines (NYSE:IBM)
International Business Machines Corporation (IBM) is a global technology and consulting company headquartered in Armonk, New York. Founded in 1911 as the Computing-Tabulating-Recording Company (CTR) and renamed IBM in 1924, the company has evolved from early electromechanical machines to a diversified technology provider serving enterprises and governments worldwide. IBM is publicly traded on the New York Stock Exchange under the ticker symbol IBM.
IBM’s principal businesses encompass cloud computing and software, infrastructure and systems, consulting and technology services, and research and development.
