IBM sells software subscriptions for AI and cloud computing to large enterprises and governments, the consulting services to help them actually deploy that technology, and specialized computers (like mainframes) to run it — a business that grew barely at all for years before generative AI helped drive its best profit and cash-flow numbers in recent memory.
How IBM makes money
IBM sells software subscriptions and licenses for cloud computing and AI, the consulting services large organizations need to actually deploy that technology, and specialized computer hardware (like mainframes) to run it — mostly to large enterprises and governments across more than 175 countries.
Roughly 12% of revenue is reinvested into R&D to build the next generation of software and AI technology. Source: IBM 2025 Annual Report to Stockholders (10-K Exhibit 13), p.16.
Where the revenue comes from
| Segment | Revenue | Share |
|---|---|---|
| Software | $29,962M | 44.4% |
| Consulting | $21,055M | 31.2% |
| Infrastructure | $15,718M | 23.3% |
| Financing / other | $800M | 1.1% |
Source: IBM 2025 Annual Report (10-K Exhibit 13), p.16.
Geographically (FY2025): the Americas are 49.4%, EMEA 32.9%, and Asia-Pacific 17.8%.
Source: IBM 2025 Annual Report (10-K Exhibit 13), p.20.
Customers and competitors
IBM sells primarily B2B and to government agencies, operating in more than 175 countries with about 60% of revenue from outside the U.S. Whether any single customer accounts for 10% or more of revenue isn't disclosed in the filings reviewed here.
- Software rivals — Microsoft, Oracle, SAP, Salesforce, Google, and Amazon all compete directly with IBM's cloud and AI software offerings.
- Consulting rivals — Accenture, Capgemini, and India-based IT services firms compete for the same enterprise-transformation contracts.
- Infrastructure rivals — Dell, HPE, and NetApp compete in servers and enterprise hardware.
Source: 10-K FY2025, p.2, p.4.
The metric that matters most in this sector
IBM's "generative AI book of business" (cumulative signed contract value, inception-to-date) shows whether the company is actually converting AI hype into signed deals rather than just talking about it — this backlog typically converts into revenue over 1-2 years.
| Q3 FY23 | Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 |
|---|---|---|---|---|---|
| ~$0.2B | >$1B | >$2B | >$3B | >$5B | >$5B+ |
Starting in Q2 FY2025, IBM switched from disclosing a cumulative total to reporting new bookings per quarter instead (for example, Consulting alone signing over $1B in a quarter), and by the first half of FY2026, earnings calls stopped emphasizing this metric with a specific number at all — whether that reflects slowing growth or the metric simply being absorbed into the core business isn't something these filings can resolve.
Source: IBM Q3 FY2023 through Q1 FY2025 earnings call transcripts (management commentary, as originally stated each quarter).
Leadership and ownership
CEO Arvind Krishna (63) has led IBM since April 2020, adding the Chairman title in December 2020. He joined IBM in 1990, ran the IBM Cloud & Cognitive Software division (2017-2020), and was the architect of the Red Hat acquisition — a 30-plus-year IBM veteran, though not a founder or founding family member. Ownership is dominated by index funds: Vanguard (10.03%), BlackRock (8.3%), and State Street (6.03%); combined, all directors and officers (including Krishna) hold under 1%.
Source: DEF 14A 2026, p.13, p.28-29 (as of Dec 31, 2025).
Capital returns
IBM pays a quarterly dividend of $1.69/share ($6.76 annualized), yielding roughly 2.9% at the current price, with a payout ratio around 60% and 30 consecutive years of dividend increases.
Source: 10-K FY2025, p.11; stockanalysis.com/stocks/ibm/dividend (Aug 2026).
How this company could fail
- Falling behind in AI and innovation — if IBM fails to keep leading hybrid-cloud and AI innovation, or fails to build a strong developer ecosystem, it risks losing market share and pricing power.
- Rising debt from large acquisitions — the 2025 HashiCorp acquisition (roughly $8.2 billion) pushed total debt from $54.9 billion (2024) to $61.3 billion (2025); if acquisitions underperform, the debt burden remains without the expected payoff.
- Tariff, currency, and geopolitical risk from global operations — with more than half of revenue from outside the U.S. across 175+ countries, tariffs, export controls, trade disputes, and currency swings directly affect results.
Source: 10-K FY2025, Item 1A Risk Factors, p.3-4.
Five-year financials
| FY2021 | FY2022 | FY2023 | FY2024 | FY2025 | |
|---|---|---|---|---|---|
| Revenue | 57,350 | 60,530 | 61,860 | 62,753 | 67,535 |
| YoY growth | — | +5.5% | +2.2% | +1.4% | +7.6% |
| Net income (margin) | 5,743 (10.0%) | 1,639 (2.7%) | 7,502 (12.1%) | 6,023 (9.6%) | 10,593 (15.7%) |
| Free cash flow | 6,508 | 9,300 | 11,200 | 12,749 | 14,734 |
| Total debt | 51,700 | 50,949 | 56,547 | 54,973 | 61,260 |
| Diluted EPS ($) | 6.35 | 1.95† | 8.14 | 6.43 | 11.17 |
Source: IBM 2023 and 2025 Annual Reports to Stockholders (10-K Exhibit 13) and IBM Q4 earnings press releases (Ex-99.1, Jan 25 2022 / Jan 25 2023 / Jan 24 2024 / Jan 28 2026).
What we still don't know
- Whether Q2 FY2026's software and infrastructure softness is temporary — the Q2 FY2026 10-Q said software and infrastructure revenue missed expectations, though first-half 2026 revenue overall still grew 5%. Whether this is a trend reversal or a one-off requires Q3 FY2026 results.
- Why IBM stopped disclosing its cumulative GenAI book-of-business figure after Q1 FY2025 (>$5B+) — the disclosure method changed, and by mid-2026 the metric wasn't mentioned on earnings calls at all. Whether that reflects slowing growth or absorption into core business isn't confirmed.
- Customer concentration and specific enterprise/government revenue breakdowns aren't disclosed in the filings reviewed here.
Frequently asked questions
How does IBM make money?
IBM sells three main things to large enterprises and governments: Software subscriptions and licenses for cloud and AI (44% of FY2025 revenue), Consulting services to deploy and run that technology (31%), and Infrastructure — specialized computers like mainframes and servers (23%) — plus a small Financing segment that lends customers money to buy IBM equipment.
Why doesn't IBM's 10-K show its own financial statements directly?
IBM's 10-K defers its financial statements to a separate exhibit, the '2025 Annual Report to Stockholders' (Exhibit 13), rather than including them in the main 10-K body — an unusual but permitted structure. This analysis cites that exhibit directly for segment and financial figures.
What is IBM's market cap?
As of this article's data, IBM's market cap was about $220.3B, on FY2025 revenue of $67.5B.