IBM Exceeds Q4 Revenue Forecasts with AI-Driven Software Demand

Bassyonni

Published: January 28, 2026 4:46 PM ET

IBM Exceeds Q4 Revenue Forecasts with AI-Driven Software Demand

IBM recently surpassed Wall Street’s expectations for its fourth-quarter revenue and profit, primarily driven by a surge in demand for artificial intelligence (AI) software services. The rapid adoption of AI technologies has prompted businesses to modernize their software systems, benefiting IT service providers like IBM. Following this announcement, IBM’s shares rose nearly 6% in after-hours trading.

Quarterly Financial Performance

For the fourth quarter, ending December 31, IBM reported a revenue of $19.69 billion. This figure exceeded analysts’ average estimate of $19.23 billion. The company’s adjusted earnings reached $4.52 per share, surpassing the forecast of $4.32 per share.

Software Segment Growth

Software segment revenue: $9.03 billion
Analysts’ estimate: $8.77 billion
Automation unit growth: 18%
Data unit growth: 22%

IBM has been enhancing its software portfolio through strategic acquisitions. Notable deals include a $6.4 billion purchase of HashiCorp and an ongoing $11 billion acquisition of data infrastructure company Confluent. These moves aim to cater to the growing needs of businesses integrating AI.

Challenges in Hybrid Cloud Segment

IBM’s hybrid cloud unit, including the Red Hat division, experienced a decline in growth rate. The revenue growth slowed to 10% in the fourth quarter, down from 14% in the third quarter and 16% in the second quarter. This reduction was attributed to the prolonged U.S. government shutdown, which negatively impacted about 15% of IBM’s hybrid cloud bookings.

IBM Chief Financial Officer Jim Kavanaugh noted that the government shutdown affected Red Hat’s growth by “a couple of points.” As of now, the federal government is contemplating another partial shutdown due to ongoing funding disputes.

Outlook and Future Growth

Despite current challenges, IBM’s AI business saw significant growth, reaching $12.5 billion, an increase of $3 billion from the previous quarter. However, the consulting segment reported sales of $5.35 billion, which fell short of the estimate of $5.38 billion as businesses focus more on long-term AI investments amid economic uncertainties.

Moving forward, IBM aims to navigate potential disruptions from the government shutdown. Kavanaugh expressed hope that a resolution to the budget conflict would help stabilize the company’s future growth prospects.