By Tae Kim and Ben Levisohn

International Business Machines reported better-than-expected earnings results for its latest quarter. Its stock was falling anyway.

For the September quarter, IBM reported earnings per share of $2.65, compared with the consensus call for $2.45 among Wall Street analysts tracked by FactSet. Revenue came in at $16.3 billion, which was ahead of analysts' expectations for $16.1 billion.

"New innovation, the strength and diversity of our portfolio, and our disciplined execution led to acceleration in revenue growth and profit in the quarter," IBM Chief Financial Officer James Kavanaugh said in the press release.

The stock's rally this year set a high bar for results. IBM shares were down 7.8% in premarket trading. In the regular session, they dipped 1.2% to $284.19.

Software may be the culprit. Software revenue grew by 10% to $7.2 billion for the September quarter, while consulting revenue rose by 3% to $5.3 billion. Unfortunately, growth at Red Hat appears to be decelerating, according to Evercore analyst Amit Daryanani. "The big question on the print was the deceleration in RHT (+12%) vs. expectations for mid-teens growth," he writes. "[We] think the headwind here was largely around consumption part of RHT seeing a slowdown coupled with lower than expected yield on the pipeline."

For the full year, IBM now forecasts more than 5% revenue growth in constant currency and expects to generate about $14 billion in free cash flow.

IBM stock has rallied 31% so far this year as of Wednesday's close, compared with an 18% rise for the Nasdaq Composite index.

Write to Tae Kim at tae.kim@barrons.com

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October 23, 2025 14:05 ET (18:05 GMT)

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