Snapshot

IBM generated revenue of $67.5 billion, gross profit of $39.3 billion, operating income of $10.9 billion, and net income of $10.6 billion in FY2025. Diluted EPS was $11.17 in FY2025.

In Q2 FY2026, IBM recorded revenue of $17.2 billion, gross profit of $9.9 billion, operating income of $2.6 billion, and net income of $2.2 billion. Gross margin was 57.7% and operating margin was 15.2% in Q2 FY2026, while diluted EPS was $2.27 in Q2 FY2026. Revenue was $69.1 billion and net income was $10.7 billion in the TTM to Q2 FY2026.

Growth

Revenue increased 7.62% in FY2025 against FY2024, reaching $67.5 billion in FY2025. Revenue compound annual growth was 3.72% in FY2022–FY2025 and 4.12% in FY2020–FY2025. Diluted EPS increased 73.7% in FY2025 against FY2024 to $11.17 in FY2025, with a 83.8% compound annual growth rate in FY2022–FY2025.

Free cash flow was $12.2 billion in FY2025 and declined −5.64% in FY2025 against FY2024; its compound annual growth was 9.93% in FY2022–FY2025. In Q2 FY2026, revenue increased 1.09% against Q2 FY2025, while diluted EPS declined −1.73% and free cash flow increased 56.5% in Q2 FY2026 against Q2 FY2025. Revenue grew 7.90%, EPS grew 83.0%, and free cash flow grew 7.63% in the TTM to Q2 FY2026 against TTM to Q2 FY2025.

Profitability

Gross margin was 58.2%, operating margin was 16.1%, pre-tax margin was 15.3%, and net margin was 15.7% in FY2025. Gross margin increased 2.2 percentage points in FY2020–FY2025, while operating margin increased 8.8 percentage points, pre-tax margin increased 10.6 percentage points, and net margin increased 5.6 percentage points in FY2020–FY2025.

Return on equity was 35.2%, return on assets was 7.33%, and return on invested capital was 8.53% in FY2025. These returns were higher in FY2025 than in FY2024, when return on equity was 24.1%, return on assets was 4.42%, and return on invested capital was 7.76%. No industry-median profitability measures are reported.

Balance sheet

Total debt was $61.3 billion and net debt was $46.8 billion in FY2025. Cash and short-term investments were $14.5 billion in FY2025, while shareholders’ equity was $32.7 billion and book value per share was $35.12 in FY2025.

Net debt was $53.8 billion in Q2 FY2026, compared with $46.8 billion in FY2025. The current ratio was 0.8× and debt to equity was 1.8× in Q2 FY2026. Working capital was −$1.7 billion in FY2025, following working capital of $1.3 billion in FY2024.

Cash flow & capital return

Operating cash flow was $13.2 billion in FY2025, down −1.87% in FY2025 against FY2024. Capital expenditure was $970.0 million and free cash flow was $12.2 billion in FY2025. Free cash flow represented 115.4% of net income in FY2025.

Dividends paid were $6.3 billion and net share repurchases were $308.0 million in FY2025, contributing to capital returned to shareholders of $6.6 billion in FY2025. Capital returned to shareholders totaled $30.9 billion in FY2021–FY2025. Weighted average shares were 932.3 million shares in FY2025, and the share count changed 4.71% in FY2020–FY2025. Free cash flow was $13.8 billion and operating cash flow was $14.9 billion in the TTM to Q2 FY2026.

Valuation

Market capitalisation was $207.7 billion as of September 28, 2026. The P/E was 19.3× as of September 28, 2026, below the 26.1× five-year median and the 20.2× ten-year median, while above the 14.4× industry median as of September 28, 2026.

The P/S was 3.0× as of September 28, 2026, above the 2.4× five-year median, 2.0× ten-year median, and 1.1× industry median. The P/B was 6.0× as of September 28, 2026, below the 6.5× five-year median and 6.4× ten-year median, while above the 2.0× industry median. EV/Sales was 3.8× as of September 28, 2026, above its 3.1× five-year median, 2.8× ten-year median, and 1.2× industry median. EV/Cash flow was 18.9× as of September 28, 2026, above its 18.5× five-year median and 14.0× ten-year median.

What changed since last quarter

Revenue was $17.2 billion in Q2 FY2026, up 7.82% against Q1 FY2026 and 1.09% against Q2 FY2025. Gross margin was 57.7% in Q2 FY2026, up 1.5 percentage points against Q1 FY2026 but down −1.0 percentage point against Q2 FY2025; operating margin followed the same direction at 15.2% in Q2 FY2026. Management attributes the year-over-year gross-margin decline to the revenue shortfall and mix, partly offset by productivity actions.

Diluted EPS was $2.27 in Q2 FY2026, up 77.3% against Q1 FY2026 and down −1.73% against Q2 FY2025. Free cash flow was $2.4 billion in Q2 FY2026, down −51.6% against Q1 FY2026 and up 56.5% against Q2 FY2025. Management attributes the revenue shortfall to late-quarter shifts in client spending priorities, including large deals not closing on expected timelines, and reports that Software and Infrastructure results were below expectations while Consulting was in line.

Open questions

• How durable are the client buying dynamics that affected Software and Infrastructure in the latest quarter?
• How will the shift in client spending priorities affect the timing of transactional software revenue?
• What is driving the increase in net debt relative to the prior year?
• How will investments in portfolio innovation and acquisition-related costs affect margins?

Sources

• Form 10-Q filed July 23, 2026 — management’s discussion and analysis