IBM Earnings Q3 2025: Stock Drops 5%

IBM earnings in Q3 2025 reflected that the corporation surpassed Wall Street forecasts with $16.33 billion in revenue and adjusted earnings of $2.65 a share, although shares fell 5% in after-hours trading. The IBM stock drop was despite high AI revenue growth, as investors concentrated on declining software growth in the Red Hat hybrid cloud business, which slowed to 14 percent versus 16 percent in the previous quarter. IBM’s AI book of business reached $9.5 billion, up $2 billion from Q2, but concerns about the company’s high-margin software segment and investor sentiment overshadowed the positive IBM earnings Q3 2025 results.

IBM stock price chart -Source: CNBCIBM stock price chart -Source: CNBC## IBM Earnings Q3 2025 Reveal AI Surge But Software Growth Slows

President and CEO of IBM Arvind Krishna attends the 55th annual World Economic Forum meeting in Davos – Source: CNBCPresident and CEO of IBM Arvind Krishna attends the 55th annual World Economic Forum meeting in Davos – Source: CNBC### Red Hat Slowdown Triggers IBM Stock Drop

IBM income for Q3 2025 The software revenue stands at 7.2 billion and is at par with expectations, however, this raises a question on the growth rate of software. The growth of Red Hat in constant currency dropped to 12 percent, compared to 14 in Q2, which is raising concerns among investors that put money in the cloud computing of IBM.

![IBM stock chart Nov 2024-Oct 2025 with key financial metrics]](https://cdn.thebittimes.com/images/2025/10/23/03203ee1ad4386ae0bba5177817f3232.webp)IBM stock chart Nov 2024-Oct 2025 with key financial metrics] – Source: ReutersCEO Arvind Krishna is convinced about the fact that:

CEO Arvind Krishna

“This quarter we accelerated performance across all of our segments, and again exceeded expectations for revenue, profit and free cash flow.”

“This quarter we accelerated performance across all of our segments, and again exceeded expectations for revenue, profit and free cash flow.”

However, investor sentiment remained cautious. Dan Morgan, portfolio manager at Synovus Trust, said:

Dan Morgan

“The stock is priced to perfection. There was little wiggle room for any metric to come up short.”

“The stock is priced to perfection. There was little wiggle room for any metric to come up short.”

IBM data center/cloud infrastructure – Source: PR NewswireIBM data center/cloud infrastructure – Source: PR NewswireAlso Read: TSLA Stock Slides 37% Despite $28B Revenue Surge, Market Share Falls

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IBM’s infrastructure segment grew 17% to $3.56 billion, driven by the new AI-powered mainframe. CFO Jim Kavanaugh told Reuters the mainframe is being widely used by the financial industry for AI applications while maintaining strict data residency and encryption rules.

The company’s automation revenue jumped 24%, and data revenue increased 8%, showcasing strong AI revenue momentum despite software concerns.

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Source: ReutersIBM has increased its full-year revenue growth outlook by over 5% at constant currency and anticipates over $14 billion of free cash flow, surpassing the Wall Street forecast of 13.6. Krishna forecasts the hybrid cloud unit to resume mid-teen percentage growth by the end of 2026.

Michael Ashley Schulman, chief investment officer at Running Point Capital, noted:

Michael Ashley Schulman

“A slowdown in Red Hat revenue and software sales will disappoint some that were hoping for accelerating growth in what is a high-margin segment.”

“A slowdown in Red Hat revenue and software sales will disappoint some that were hoping for accelerating growth in what is a high-margin segment.”