IBM Shares Surge as AI and Mainframe Demand Drive Record Growth

IBM has delivered a stunning quarterly performance that has taken markets by surprise, reporting its strongest growth in years and subsequently raising its full-year guidance. The technology stalwart, which some had considered past its prime, is demonstrating that the artificial intelligence revolution is propelling it back to prominence. The question now becomes whether this impressive momentum can be sustained.

Bolstered by these robust results, IBM's management has upgraded its projections for the full year. The company now anticipates revenue growth will exceed 5%, moving beyond its previous target of "at least" 5% growth. Furthermore, IBM forecasts its free cash flow will reach approximately $14 billion—a $500 million increase over prior expectations.

Artificial Intelligence Portfolio Exceeds $9.5 Billion

IBM's artificial intelligence segment has become a veritable revenue powerhouse. The AI business surged from $7.5 billion in the second quarter to over $9.5 billion. A significant portion of this growth, approximately 80% of AI bookings, originates from the high-margin consulting division.

Notably, the company is already implementing more than 200 large-scale consulting projects utilizing what it terms "digital workers"—sophisticated AI agents. Internally, the productivity savings generated by generative AI are projected to reach an annualized value of $4.5 billion.

Should investors sell immediately? Or is it worth buying IBM?

Software Division Emerges as Primary Growth Engine

The software segment has firmly established itself as IBM's dominant growth driver. Generating $7.21 billion in revenue during the third quarter of 2025, this division expanded by a substantial 10%. Particularly impressive was the automation unit, which saw explosive growth of 22%.

The 2019 acquisition of Red Hat, valued at billions, is now delivering significant returns. Bookings accelerated to approximately 20% growth, while the OpenShift platform—with annual recurring revenue of $1.8 billion—achieved growth exceeding 30%.

Mainframe Business Experiences Spectacular Revival

In a development that few anticipated, IBM's mainframe operations are undergoing a remarkable resurgence. The infrastructure division soared by 17% to $3.6 billion, fueled primarily by demand for the new z17 mainframe generation.

The flagship IBM Z series achieved phenomenal growth of 59%, recording its highest quarterly revenues in nearly two decades. This resurgence is attributed to enterprises heavily investing in AI inferencing capabilities, quantum-resistant encryption, and operational efficiency—all core strengths of the latest z17 systems.