IBM reported third-quarter revenue and profit that beat market expectations, but investor optimism dimmed as growth in its key cloud software division slowed. The company’s shares fell 5% in after-hours trading, despite strong results driven by soaring demand for its new AI-powered mainframe systems.
Revenue in the hybrid cloud unit, which includes Red Hat, rose 14% compared to 16% in the previous quarter — a slowdown that raised investor concern about IBM’s ability to fully capitalize on the global cloud boom. Total quarterly revenue reached $16.33 billion, surpassing analyst estimates of $16.09 billion, according to LSEG data.
CEO Arvind Krishna said IBM expects Red Hat’s growth to return to mid-teen levels by 2026. Analysts noted that the deceleration in software sales may disappoint investors, given the segment’s high margins. However, IBM’s infrastructure division, housing its mainframe business, was a standout performer with revenue up 17% to $3.56 billion.
The new mainframe, optimized for AI workloads, is being widely adopted in the financial sector due to its data security and encryption strengths. IBM’s total AI-related business has grown to $9.5 billion, up $2 billion from the previous quarter. The company raised its full-year outlook, now expecting revenue growth above 5% at constant currency.