AI Takeaway
IBM’s Q2 FY2026 revenue grew 1.1% to $17.2B, but an IBM Z-related Infrastructure shortfall and lower gross margin contributed to a 1.3% decline in net income to $2.2B. Source: 10-Q Item 2 MD&A, pp.46-47.
Revenue
$17.16B
++1.09% YoY
EPS (Basic)
$2.30
-2.54% YoY
Gross Margin
57.7%
-1.04% YoY
Filed · Source: SEC EDGAR 10-Q filing
IBM reported Q2 FY2026 revenue of $17.16B, up 1.1% year over year. The company posted net income of $2.17B, down 1.3% from a year earlier, with diluted EPS of $2.27. Gross margin was 57.7%.
Revenue increased 1.1% year over year to $17.2B. Management stated that Software and Infrastructure performance was below expectations, while Consulting was in line; Software grew 5.1%, Consulting was essentially flat at 0.2% growth, and Infrastructure declined 7.4%.
Source: 10-Q Item 2 MD&A, pp.46, 50
Infrastructure revenue fell 7.4% to $3.8B, with IBM Z revenue down 42.0% versus a historically strong prior-year z17 launch period. Management attributed the shortfall partly to large deals that did not close on expected timelines after clients redirected spending toward supply-constrained servers, storage and memory ahead of anticipated price increases.
Source: 10-Q Item 2 MD&A, pp.46, 54-55
Software revenue rose 5.1% to $7.8B, led by Data growth of 18.9% and Hybrid Cloud growth of 11.2%. Management said approximately 80% of Software revenue is recurring; Software ARR was $24.6B, up approximately $2.0B year over year, reflecting Confluent and growth in the recurring-revenue base, while Transaction Processing revenue declined 8.1%.
Source: 10-Q Item 2 MD&A, pp.46, 51
Total gross margin decreased 1.0 percentage point to 57.7%, which management attributed to the revenue shortfall and product mix, partly offset by productivity actions. Infrastructure gross margin declined 3.1 points to 58.4%, while Software gross margin declined 1.3 points to 82.6%; Consulting gross margin improved 1.4 points to 28.9%.
Source: 10-Q Item 2 MD&A, pp.46, 50, 52-55
Consulting revenue was essentially flat at $5.3B, but quarterly signings rose 5.0% to $5.0B and the trailing-12-month book-to-bill ratio was approximately 1.05. Consulting backlog was $30.8B at June 30, 2026, and management cited demand for application modernization, data transformation and cybersecurity services.
Source: 10-Q Item 2 MD&A, pp.52-54
Quarterly revenue increased 1.1% to $17.2B, while cost of revenue increased 3.6% to $7.3B. As a result, gross profit declined 0.7% and gross margin fell to 57.7% from 58.8%, indicating that modest top-line growth did not fully cover higher delivery costs.
Source: 10-Q Income Statement (XBRL)
IBM reported current assets of $28.4B and current liabilities of $35.9B, resulting in a current ratio of 0.79x. This means reported short-term assets were below reported short-term liabilities at the reporting date, although this ratio alone does not determine the company’s overall liquidity capacity.
Source: 10-Q Balance Sheet (XBRL)
Long-term debt was $56.2B and debt to equity was 3.41x, compared with stockholders’ equity of $34.5B. This capital structure can make financial results more sensitive to interest expense, refinancing conditions and changes in operating cash generation.
Source: 10-Q Balance Sheet (XBRL)
Cash and equivalents decreased 39.9% year over year to $7.2B. Although six-month operating cash flow increased 27.9% to $7.8B, investing cash outflows were $11.0B for the first six months of FY2026, exceeding operating cash flow over that span.
Source: 10-Q Balance Sheet and Cash Flow Statement (XBRL)
Reported EPS of $2.93 versus the $3.01 analyst consensus — a -2.7% miss for Q2 FY2026.
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Revenue | $17.16B | $16.98B | +1.09% |
Cost of Revenue | $7.25B | $7B | +3.63% |
Gross Profit | $9.91B | $9.98B | -0.70% |
Net Income | $2.17B | $2.19B | -1.32% |
EPS (Basic) | $2.30 | $2.36 | -2.54% |
EPS (Diluted) | $2.27 | $2.31 | -1.73% |
R&D Expense | $2.31B | $2.1B | +10.21% |
SG&A Expense | $4.98B | $5.03B | -0.92% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Total Assets | $152.1B | $148.59B | +2.36% |
Current Assets | $28.4B | $34.25B | -17.09% |
Total Liabilities | $117.56B | $121B | -2.84% |
Current Liabilities | $35.91B | $37.73B | -4.81% |
Stockholders' Equity | $34.45B | $27.51B | +25.24% |
Cash & Equivalents | $7.17B | $11.94B | -39.95% |
Long-Term Debt | $56.21B | $55.22B | +1.80% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Operating Cash FlowYTD | $7.77B | $6.07B | +27.92% |
Investing Cash FlowYTD | $-10.97B | $-11.28B | +2.76% |
Financing Cash FlowYTD | $-3.01B | $2.59B | -216.18% |
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Gross Margin | 57.7% | 58.8% | -1.04% |
Net Margin | 12.6% | — | — |
ROE | 6.3% | — | — |
ROA | 1.4% | — | — |
Current Ratio | $0.791 | — | — |
Debt to Equity | $3.412 | — | — |
Expected release date, analyst estimates & what to watch
IBM delivered strong Q1 2026 results with revenue of $15.9B (+9.5% YoY) and net income of $1.2B (+15.3% YoY), driven by gross margin expansion to 56.2% and robust operating cash flow growth of 18.3%.
IBM delivered strong FY2025 results with revenue growing 7.6% to $67.5B and net income surging 75.9% to $10.6B, driven by gross margin expansion to 58.2% and likely boosted by the HashiCorp acquisition, though elevated debt and a current ratio below 1.0 warrant monitoring.
IBM delivered a strong Q1 2024 with net income surging 73.1% YoY to $1.6B on modest 1.5% revenue growth to $14.5B, driven by improved margins and significantly higher operating cash flow.
Other companies in IT Consulting & Other Services
IBM reported Q2 FY2026 revenue of $17.2B, up 1.1% year over year. Software revenue increased 5.1% to $7.8B, but Infrastructure revenue declined 7.4% to $3.8B, while Consulting was essentially flat at $5.3B. Source: 10-Q Item 2 MD&A, pp.46, 50.
Net income declined 1.3% to $2.2B and diluted EPS declined 1.7% to $2.27. Management attributed pressure on results to a late-quarter IBM Z and associated software shortfall, which reduced Infrastructure revenue and contributed to a 1.0-point decline in gross margin to 57.7%. Source: 10-Q Item 2 MD&A, pp.46-47, 54-55.
IBM Z revenue declined 42.0% year over year, contributing to a 10.3% decline in Hybrid Infrastructure revenue and a 7.4% decline in total Infrastructure revenue. Management said large deals failed to close within expected timelines as some clients redirected spending toward supply-constrained servers, storage and memory. Source: 10-Q Item 2 MD&A, pp.46, 54.
Software revenue increased 5.1% to $7.8B, with Hybrid Cloud up 11.2% and Data up 18.9%, while Transaction Processing declined 8.1%. IBM also reported Software ARR of $24.6B, up approximately $2.0B year over year, although management notes that ARR is not necessarily revenue recognized in future periods. Source: 10-Q Item 2 MD&A, p.51.
IBM generated $7.8B of operating cash flow in the first six months of FY2026, up 27.9% year over year, and reported $34.5B of stockholders’ equity. However, cash and equivalents were $7.2B, the current ratio was 0.79x, and debt to equity was 3.41x, highlighting the importance of continued cash generation and balance-sheet management. Source: 10-Q Balance Sheet and Cash Flow Statement (XBRL); 10-Q Item 2 MD&A, p.49.