Key Highlights

● Software Revenue rose 5% to $7,761 million, the only segment to grow meaningfully.

● Total second-quarter revenue increased 1% to $17,162 million from $16,977 million a year earlier.

● GAAP Net Income was $2,165 million, down 1%, while operating EPS rose 5% to $2.93.

● IBM guides constant-currency revenue growth of 4% to 5% for full-year 2026.

International Business Machines Corporation (NYSE:IBM) published its second-quarter 2026 results on 22 July 2026, and the figures answer a question many investors ask about the group: how much of the business is now driven by software? Software revenue of $7,761 million was the largest of the three segments and the only one to grow meaningfully, rising 5% in the quarter, while total revenue edged up 1% to $17,162 million.

A business built on software, consulting and infrastructure

IBM reports through three segments. Software covers hybrid cloud platforms, automation, data and security products sold largely on subscription and transaction terms. Consulting provides technology and business advisory work, including implementation of artificial intelligence and cloud programmes for large organisations. Infrastructure comprises mainframe systems, storage and related support services.

The mix matters because the segments behave differently. Software revenue tends to be recurring and carries higher margins, consulting follows client spending decisions on projects, and infrastructure is cyclical, rising and falling with the product cycle for mainframes. IBM has spent several years reshaping the group around hybrid cloud and AI, and its quarterly figures are the clearest evidence of how far that shift has progressed.

What the latest quarter showed

According to the company's Earnings release filed with the US Securities and Exchange Commission, consulting revenue of $5,327 million was flat, or up 1% at constant currency, and infrastructure revenue of $3,835 million fell 7%. The decline in infrastructure offset part of the gain in software, which explains why the group total moved only 1% against $16,977 million a year earlier.

Profitability was broadly stable. GAAP net income was $2,165 million, down 1%, and Diluted Earnings per Share on a GAAP basis were $2.27, down 2%. Operating earnings per share, a non-GAAP measure that IBM uses to exclude certain items, were $2.93, an increase of 5%. Free Cash Flow for the quarter was $2,540 million, $0.3 billion lower than a year earlier.

The board also declared a regular quarterly Dividend of $1.69 per share.

Outlook and industry context

IBM now expects constant-currency revenue growth of 4% to 5% for the full year 2026. Exchange rates are expected to be neutral to positive at current levels, and the company still anticipates free cash flow rising by about $1 billion year on year. Those full-year ambitions are higher than the 1% reported for the second quarter, so the second half of the year must carry more of the growth. That is a forecast from management, not a reported result.

The wider backdrop is a market in which enterprises are weighing how much to spend on generative AI, data platforms and hybrid cloud, and where competitors range from the largest cloud providers to specialist software vendors and global consultancies. Chief executive Arvind Krishna said in the release that IBM is confident in its strategy and portfolio and in its ability to capture growth opportunities ahead.

Risks and uncertainties

Several uncertainties sit behind the figures. Infrastructure revenue is exposed to the timing of product cycles, and a 7% decline shows how quickly that segment can offset gains elsewhere. Consulting growth depends on client budgets, which can shift when economic conditions weaken. Currency movements can alter reported results and competition in AI and cloud software is intense. Free cash flow also fell year on year in 2026, so the full-year target depends on stronger conversion later in 2026.

What to watch next

The key developments are the pace of software growth, any recovery in infrastructure demand, and whether consulting returns to growth as AI projects move from pilots to deployment. Free cash flow against the guided increase of about $1 billion is also worth tracking, and the next Quarterly Report will show whether the second-half acceleration implied by guidance is materialising.