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IBM
FY2026 Q1
Improving
International Business Machines Corporation earnings call
Buzzberg read
Software growth accelerated to 10%+ for 2026, driven by data and Red Hat.
IBM reported a strong Q1 with 6% revenue growth, margin expansion, and free cash flow of $2.2B. Management maintained full-year guidance but raised software growth to 10%+. AI adoption and mainframe demand were key themes, with partnerships highlighted (NVIDIA, Arm) and customer wins (ServiceNow, Visa, Nestle, banks). Q1 revenue grew 6% cc, with software up 8%, infrastructure up 12% (Z +48%), consulting up 1%.
Buzzberg read Software growth accelerated to 10%+ for 2026, driven by data and Red Hat. IBM reported a strong Q1 with 6% revenue growth, margin expansion, and free cash flow of $2.2B. Management maintained full-year guidance but raised software growth to 10%+. AI adoption and mainframe demand were key themes, with partnerships highlighted (NVIDIA, Arm) and customer wins (ServiceNow, Visa, Nestle, banks). Q1 revenue grew 6% cc, with software up 8%, infrastructure up 12% (Z +48%), consulting up 1%. Read full analysisCollapse analysis
IBM reported a strong Q1 with 6% revenue growth, margin expansion, and free cash flow of $2.2B. Management maintained full-year guidance but raised software growth to 10%+. AI adoption and mainframe demand were key themes, with partnerships highlighted (NVIDIA, Arm) and customer wins (ServiceNow, Visa, Nestle, banks). Q1 revenue grew 6% cc, with software up 8%, infrastructure up 12% (Z +48%), consulting up 1%.
- Free cash flow reached $2.2B, highest first quarter in a decade; adjusted EBITDA up 17%.
- Software guidance raised to 10%+ growth for the year; total revenue and FCF guidance maintained at 5%+ and ~$1B increase respectively.
- Mainframe Z17 cycle is strongest on record, with 100%+ new MIPS growth for four consecutive quarters.
Revenue$15.917B-19% QoQ
EPS$1.91-58% QoQ
Gross margin56.23%Reported
Operating margin13.94%Reported
6 grounded callouts
What matters now
The highest-signal changes from the call.
AI
AI is a growth driver with consulting backlog 30% Gen AI.
Demand
IBM Z sets record quarter, up 48%, with AI-driven demand.
Show 3 more callouts
M&A
M&A appetite could increase as valuations attract, later in 2026.
AI
Mainframe AI inference expands monetization via new AI MIPS.
Supply
Supply chain headwinds de minimis for IBM, mitigated by supplier ties.
Reported period
Actuals
| Metric | Reported | Change |
|---|---|---|
| Revenue | $15.917B | -19% QoQ |
| EPS | $1.91 | -58% QoQ |
| Gross margin | 56.23% | Reported |
| Operating margin | 13.94% | Reported |
| Free cash flow | $4.778B | +53% QoQ |
| Capex | $0.391B | Reported |
Forward-looking
Forward guidance
| Metric | Period | Range | Midpoint | Status |
|---|---|---|---|---|
| Free cash flow | FY2026 | $1B | $1B | Maintained |
| Operating margin | FY2026 | 1% | 1% | Maintained |
| Operating margin | FY2026 Q2 | 0.5% | 0.5% | Guided |
| Revenue | FY2026 | 5% | 5% | Maintained |
| RevenueSOFTWARE | FY2026 | 10% | 10% | Raised |
AI, capex & demand read
Management read
Confident
Management highlights a strong start (6% revenue growth, record Z, software acceleration) and reaffirms guidance, expressing confidence in 5%+ growth, while prudently maintaining guidance given macro uncertainty.
Management AI read
Management frames AI as a structural tailwind: enterprises are moving from experimentation to scaled deployment across hybrid environments, and IBM's platform (Red Hat, data/Confluent, automation, WatsonX, and IBM Z with Spire) is positioned to capture value as AI drives demand for open, governed, secure, and integrated infrastructure. AI is embedded across software, consulting (30% of backlog, 20
Investment and capacity
Higher capex is a planned headwind to free cash flow in 2026, as noted earlier in the year. The increase supports strategic investments in innovation (e.g., AI, quantum, and infrastructure) without specifying a dollar amount or change in direction.
all 10 named companies below
Companiesreturns since call
Customers
Customers
Arvind Krishna
ServiceNow uses IBM's AI tools to enhance its platform, indicating a deepening technology integration between the two companies.
Evidence
“ServiceNow is leveraging Watson X automated data quality and observability to deliver AI-ready data and code generation to refresh legacy applications to modern application runtimes, including ServiceNow.”
Customers
Arvind Krishna
Visa relies on IBM for core modernization of its payment network, showing ongoing strategic importance.
Evidence
“Visa continues to work with IBM on ongoing software and data modernization efforts, supporting the scale, resiliency, and performance of VisaNet.”
Customers
Arvind Krishna
Nestle is deploying AI with IBM's platform to optimize global supply chain operations.
Evidence
“With Nestle, we're using NVIDIA-accelerated WatsonX.data to embed AI directly into core order-to-cash operations, enabling faster real-time insights across Nestlé's global supply chain.”
Customers
Arvind Krishna
NatWest is modernizing its mainframe with IBM's AI tools, indicating demand for mainframe AI capabilities.
Evidence
“clients such as NatWest and RBC are modernizing their mainframe environments using AI and automation capabilities, including Watson X Assistant and Watson X Code Assistant for Z, to improve resiliency, security, and developer productivity.”
Partners
Partners
Arvind Krishna
Arm's software ecosystem is expanding onto IBM Z, potentially increasing Arm's presence in mission-critical enterprise environments.
Evidence
“we announced a strategic collaboration with Arm to expand how AI workloads run across IBM infrastructure.”
Partners
Arvind Krishna
IBM and NVIDIA are deepening their partnership on GPU-accelerated analytics, benefiting NVIDIA's enterprise AI adoption.
Evidence
“During the quarter, we also announced strategic collaborations with NVIDIA, expanding our work across GPU-native analytics.”
Supply chain
Supply chain
Jim Cavanaugh
IBM CFO acknowledged memory supply chain dislocation and cost increases, though said the impact is de minimis to IBM, implying memory prices are rising and affecting the broader hardware market. — Rising memory costs pressure hardware margins across the industry but benefit memory suppliers like Micron; IBM's downplay suggests it has mitigated impact through supply chain management.
Evidence
“supply chain dislocation, around commodity cost increases, in particular around memory. It has a de minimis impact to us overall.”
Supply chain
IBM cited 'a very dislocated hardware supply chain market' as a factor behind Red Hat Enterprise Linux (REL) deceleration, indicating hardware availability constraints are slowing enterprise Linux adoption. — Hardware supply chain dislocations are delaying enterprise infrastructure upgrades, potentially impacting revenue for server vendors like HPE and Dell.
Jim CavanaughExternal signals
Supply-chain alpha · 2returns since call
IBM CFO acknowledged memory supply chain dislocation and cost increases, though said the impact is de minimis to IBM, implying memory prices are rising and affecting the broader hardware market.
IBM cited 'a very dislocated hardware supply chain market' as a factor behind Red Hat Enterprise Linux (REL) deceleration, indicating hardware availability constraints are slowing enterprise Linux adoption.
Methodology & coverage
Management-only analysis. All 10 validated company mentions are shown. Reported actuals and forward guidance are kept separate. Public evidence is limited to eight short attributed quotes. AI-generated analysis can be incomplete or wrong; verify important claims against the original source.