stockrowWhat it does
IBM is a technology company founded in 1911 and headquartered in Armonk. Arvind Krishna is chairman, president and chief executive officer. It helps organizations modernize applications, run hybrid-cloud environments, use artificial intelligence, manage data, and operate mission-critical computing systems.
Its offer combines software, consulting and infrastructure. The software side includes Red Hat, OpenShift, data, automation, transaction-processing and security capabilities. Its infrastructure includes server, storage and mainframe platforms, including IBM Z, for workloads where clients require security, reliability, scalability and data control. Consulting designs and implements technology, operating-model and workflow changes for clients.
IBM’s enterprise-AI approach links real-time data, AI development and agent orchestration, identity and policy controls, cost management, and an open hybrid architecture. Confluent supplies real-time data capabilities; watsonx, IBM Bob and watsonx Orchestrate support AI software development and agents; HashiCorp and Apptio manage identity, access, policy, cost and performance; and Red Hat spans public cloud, on-premises, sovereign environments and the edge.
IBM also develops quantum-computing technology and sells related enterprise engagements. IBM Quantum signed 16 enterprise engagements in 2026 across automotive, aerospace, telecommunications, financial services and manufacturing.
How it makes money
IBM earns revenue from four segments: Software, Consulting, Infrastructure and Financing. Software sells subscriptions, licenses and transaction-processing products. Consulting earns fees for strategy, technology, application modernization, operations, data and AI transformation work. Infrastructure sells on-premises and cloud-based server and storage systems, life-cycle deployment services, and mission-critical IBM Z systems. Financing provides client and commercial financing that helps clients acquire IBM hardware, software and services.
Recurring software revenue comes from annual recurring revenue, subscriptions and enterprise license agreements. The company reported a $24.9 billion high-value annual recurring revenue base in the third quarter, with 8.00% growth. OpenShift is a $2.4 billion annual recurring revenue business, and its virtualization offering had $800.0 million in contracts signed since early 2024. Transaction processing sells software used with mission-critical mainframe environments. IBM also describes enterprise license agreements as long-standing client positions that can be allocated among data, automation and transaction-processing software.
IBM earns infrastructure revenue when clients buy or refresh systems, storage and related services. The z17 platform generated $1.0 billion of incremental revenue over six quarters compared with prior programs. Consulting revenue is tied to projects and broader transformation work; AI represented 30.0% of consulting revenue and 35.0% of consulting backlog in the third quarter.
In one line, third-quarter revenue grew 6%, and the company expects FY2026 revenue growth of 4%-5%.
Customers and how it sells
IBM serves enterprises and government entities, including clients in regulated industries such as financial services, healthcare, critical infrastructure and government. Its consulting clients use strategy, systems integration, application development and management, and business-process outsourcing services. Infrastructure and mainframe customers run mission-critical and AI workloads, while software customers use IBM platforms across applications, data and operating environments.
The company does business in over 175 countries and derives about sixty percent of revenue from sales outside the United States. It sells directly and through distributors, resellers, independent software vendors, independent service providers and other ecosystem partners. It also works with hyperscalers, service providers, global system integrators, and software and hardware vendors.
Named users and ecosystem participants include AT&T and General Motors in the IBM Quantum Network. Early adopters of Lightwell include Bank of America, BNY, Citi, Goldman Sachs, JPMorgan Chase, MasterCard, Morgan Stanley, Royal Bank of Canada, State Street, Visa and Wells Fargo. IBM had 286,800 employees in FY2025.
Suppliers and costs
IBM uses components, hardware and software, supplies, services and raw materials from suppliers worldwide. Certain businesses depend on a single or limited number of suppliers, including server processor technology for certain semiconductors. Supplier financial stress, shortages, late delivery, security failures, defective components or inadequate services can affect IBM’s ability to bring products to market and the reliability of its offerings.
The company is securing inventory and accelerating its supply chain to meet demand for Power and storage. It reported that constrained hardware availability affected Red Hat Enterprise Linux performance in the second quarter, and that some clients redirected spending toward supply-constrained servers, storage and memory ahead of expected price increases.
IBM’s operating model also depends on skilled technical, marketing and staff employees. It uses productivity initiatives, AI, automation, supply-chain optimization, sales and marketing efficiency, and services-delivery changes to manage costs while investing in research, innovation and go-to-market capabilities.
- Revenue$67.5B
- Cost of revenue−$28.2B
- Research and development−$8.3B
- Selling, general and administrative−$20.1B
- Operating income$10.9B
Competitive position
IBM operates in a competitive global market across software, consulting, infrastructure and financing. Its software competitors include Alphabet (Google), Amazon, BMC, Broadcom, Microsoft, Oracle, Salesforce, SAP and Splunk, a CISCO Company. Consulting competes with Accenture, Capgemini, India-based service providers, management-consulting firms, public-accounting consulting practices, engineering service providers and niche specialists. Infrastructure competes with Dell Technologies, Hewlett-Packard Enterprise, Intel, NetApp, Pure Storage, original device manufacturers and cloud service providers.
IBM identifies technology innovation, performance, price, quality, brand, breadth of capabilities, talent, client relationships and trust, business value, service and support as competitive factors. In consulting, it identifies industry expertise, hybrid-cloud, data and AI capabilities, IBM technology and ecosystem partners. In infrastructure, it emphasizes security, scalability and reliability for mission-critical and AI workloads. IBM said IBM Z runs over 70% of global transaction value.
Our reading: IBM’s installed mission-critical infrastructure and transaction-processing relationships are a meaningful moat because clients representing 85.0% of installed MIPS capacity are maintaining or growing capacity, although competitors can still contest adjacent cloud, storage and software spending. [item1] [call_prepared]
Our reading: Red Hat, OpenShift and the broader partner ecosystem are a meaningful software moat, but IBM competes against larger cloud and software platforms that are explicitly named across its markets. [item1] [call_prepared]
| Competitor | Where they compete | Threat (our reading) |
|---|---|---|
| Alphabet (Google) | software and hybrid-cloud platforms | High |
| Amazon | software and hybrid-cloud platforms | High |
| Microsoft | software and hybrid-cloud platforms | High |
| Oracle | software and hybrid-cloud platforms | High |
| Broadcom | software products | High |
| Salesforce | software products | High |
| SAP | software products | High |
| BMC | software products | Medium |
Growth opportunities
IBM’s growth initiatives center on hybrid cloud, AI, software, data, automation, infrastructure and quantum computing. The company expects FY2026 revenue growth of 4%-5%, full-year software growth of approximately 7%-8%, double-digit hybrid-cloud growth, mid-teens data growth, low-double-digit automation growth, low-double-digit infrastructure growth, and low- to mid-single-digit consulting revenue growth.
OpenShift is a $2.4 billion annual recurring revenue business, with growth of more than 30%. IBM says application modernization and AI deployments create demand for Red Hat OpenShift, data platforms and automation. Its virtualization offering has $800.0 million in signed contracts since early 2024 and a $750.0 million pipeline. Lightwell, a capability for remediated or validated open-source packages, had a pipeline approaching $700 million. The company sizes the Lightwell opportunity as a multibillion-dollar total addressable market for IBM and Red Hat.
The company is expanding its enterprise-AI ecosystem through partnerships with OpenAI and Google Cloud. It also expects AI-related consulting work to develop as clients modernize applications, strengthen data foundations and redesign workflows. AI represented 35.0% of consulting backlog in the third quarter.
Quantum is a longer-term initiative. IBM plans to deliver Starling in 2029, which it describes as the first large-scale fault-tolerant quantum computer. It also reported a $1 billion Department of Commerce award for quantum-wafer manufacturing in Anderon.
- $57.4BFY2021
- $60.5BFY2022
- $61.9BFY2023
- $62.8BFY2024
- $67.5BFY2025
Structural risks
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Client spending and economic conditions can reduce demand for IBM products and solutions, affecting revenue and profit. Technology purchasing also has long sales cycles and seasonal patterns, making period results difficult to predict.
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IBM must continue to innovate and commercialize hybrid cloud, AI, quantum and other technologies at sufficient speed. Client adoption and viable economic models in growth areas are less certain, and new delivery models can reduce demand or profitability elsewhere.
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Competition is broad and evolving. IBM’s intellectual property may not prevent similar competing products, and it may not obtain the third-party licenses it needs. Open-source code it uses may no longer be maintained or enhanced.
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Global operations expose IBM to legal, political, economic, currency, trade, export-control, privacy, AI-regulation and data-localization risks. It operates in over 175 countries, and about sixty percent of revenue comes from outside the United States.
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IBM relies on skilled employees and on suppliers, including limited sources for certain server processor technology. Talent shortages, supply disruption, defective components and constrained hardware availability can affect delivery, costs and product performance.
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Cybersecurity incidents, vulnerabilities, ransomware, data loss and service disruptions can expose IBM, customers and third parties to liability, regulatory action, loss of customers, remediation costs and reputational damage. Increased use of AI may introduce new methods of attack.
Bottom line
Our reading
Our reading: IBM is an enterprise technology business built around recurring software, consulting-led implementation and mission-critical infrastructure, with enterprise AI intended to connect those activities. Its IBM Z installed base, Red Hat and OpenShift footprint, and partner network support that model. [item1] [call_prepared]
Our reading: The company’s growth plans rely on clients continuing to modernize applications and deploy AI, while it manages competitive pressure, supply constraints, execution in consulting and the uncertain commercialization of quantum computing. [item1a] [call_prepared]