IBM Q4 Earnings Preview: 5 Things To Know

An update on IBM’s Confluent purchase, future M&A strategy and expectations for year four of the GenAI revolution are among the likely topics.

An update on IBM’s Confluent purchase. The vendor’s future acquisition strategy. And expectations for year four of the generative artificial intelligence revolution.

These are some of the topics expected to come up Wednesday when Arvind Krishna, CEO of the Armonk, N.Y.-based technology giant, hosts IBM’s latest quarterly earnings call, covering the fourth quarter of IBM’s 2025 fiscal year. The quarter ended Dec. 31.

IBM could report a softer-than-expected pre-tax income margin due to recent layoffs, Bank of America warned in a January report. The firm estimated the cost at $400 million.

[RELATED: IBM To Acquire Real-Time Data Leader Confluent In Blockbuster $11B Deal]

IBM Q4 Earnings

As for IBM’s forecast for the new fiscal year, the vendor could tell analysts to expect software revenue growth around 10 percent year on year, low single digit growth in consulting and flat growth in infrastructure. Overall, that adds up to about 5 percent growth for IBM, about 4 percent of it organic.

The firm said to expect around $14 billion in free cash flow for the entirety of the 2025 fiscal year, with IBM forecasting about $15 billion for the new fiscal year. IBM could report 2025 revenue of $67.1 billion.

Along with updates on the Red Hat open source software business, the IBM z refresh cycle and progress in IBM’s AI business including its Watsonx suite, here are more things to watch for in IBM’s latest quarterly earnings report.

Confluent Updates, M&A Strategy

Analysts on Wednesday’s call will likely seek more details on IBM’s closing date for its $11 billion deal to buy data streaming vendor Confluent, currently set for mid-year.

The tech giant’s executives might also carve out time to further discuss its post-acquisition strategy with Confluent and even update listeners on IBM’s mergers and acquisitions strategy looking ahead.

Confluent could contribute about 2 percent of revenue growth to IBM’s software business, Bank of America said in a report in December.

Potential good news for partners is Confluent's recent moves investing in its partner program, just this summer committing to invest $200 million over the next three years to expand the reach and capabilities of the company’s global partner ecosystem around its data streaming platform.

Confluent’s investments might just come in perfect timing with IBM revealing a couple of days ahead of Wednesday's earnings call that it is revamping its three-year-old Partner Plus program should help align partners and IBM with how customers consume products with better incentives, tools, co-marketing support and selling routes through hyperscaler partner marketplaces.

Other recent acquisitions by IBM whose integration progress are due for an update include AI agent building startup Seek AI, whose technology and expertise serves as a foundational part of IBM’s WatsonX AI Labs.

IBM also recently acquired DataStax, the company behind AstraDB and Langflow.

On-premises Infrastructure Beneficiary

IBM is among a host of vendors expected to benefit from more AI inference by large enterprises in on-premises data centers due to data gravity and the financial savings for organizations to bring the compute to their data, according to a Bank of America report earlier this month.

IBM should benefit thanks to its mainframe portfolio while Dell Technologies and Hewlett Packard Enterprise should see improved demand and margins from the trend. IBM has deep market penetration in systems of record and regulated compute, with enterprises leveraging mainframes for core transaction processing and IBM Power systems for analytics-heavy workloads, according to the investment firm. On-chip acceleration in the mainframes can help with low-latency scoring within transaction paths.

IBM zSystems could see incremental demand as enterprises embed inferencing into transactional systems, Bank of America argued. IBM could see a durable revenue stream with high-margin software and services attachment with zSystems’ embedded within high-throughput, low-latency transactional workloads in financial services, government and large enterprises. Mainframe users could seek upgrades with AI acceleration, secure model hosting and tight integration into data pipelines.

Mainframe customers still seek out IBM for reliability, security, native encryption, native compliance, and high availability, according to the firm.

IBM could see 2 percent growth in its transaction processing (TP) business for the latest quarter, according to Bank of America. As for IBM’s forecast, look for about 4 percent growth.

The investment firm puts hybrid infrastructure revenue growth at 15 percent for the fourth quarter thanks to the launch of IBM Spyre. But looking ahead, IBM infrastructure support revenue should grow as customers move further into the z17 launch cycle.

Hybrid infrastructure revenue growth for the 2026 fiscal year should receive a forecast of decreasing 4 percent year on year, with infrastructure support revenue growth growing 3 percent year on year, according to Bank of America.

IBM’s Spyre Accelerator became generally available for IBM z17 in October. It aims to enable enterprises to leverage AI for internal operations and even integrate functions in a natural language interface such as IBM’s Watsonx Assistant for Z. IBM made version 3.2 of its zOS operating system available toward the end of 2025.

GenAI Year Four

Wednesday’s call will give IBM executives time to expound on their predictions for year four of the generative AI era.

Some hints about what the next year of AI holds for IBM and solution providers come from a series of 2026 AI predictions report IBM published before and after New Year’s. Among IBM’s assertions in the reports are a growing desire by executives to factor AI sovereignty into their 2026 strategies so that they can identify vulnerabilities in the AI ecosystem and bring at-risk capabilities closer to home.

IBM executives also foresee more multimodal, smaller reasoning models easier to tune for specific domains, more AI research into robotics and physical AI as large language models (LLMs) hit diminishing returns from scaling and multi-agent systems moving into production.

On the cybersecurity front, IBM predicts major security incidents in 2026 where sensitive intellectual property (IP) is compromised through shadow AI systems–unapproved tools deployed by employees without oversight.

And if solution providers and their customers are still getting a handle on the AI era, fortunately or unfortunately a separate computing era might be on the horizon. IBM predicted that quantum advantage–the point at which quantum computers can outperform classical computing to solve a problem–will emerge before the end of 2026.

In terms of financial growth for AI and AI-adjacent businesses, IBM could forecast 11 percent growth year on year in its automation business for the 2026 fiscal year, according to a Bank of America report this month. IBM’s data business could receive a 12 percent growth year on year forecast, with Confluent adding 10 percent to the division.

Red Hat Updates

A safe bet for Wednesday is updated insights from IBM leadership on its Red Hat division and opportunities ahead as IBM works on closing the Confluent deal and further integrating recently acquired companies.

Red Hat’s growth for the latest quarter could decelerate down to 10 percent year on year after reporting 12 percent growth the prior quarter, Bank of America said in a January report. Part of the issue is the high growth Red Hat saw for the same period last year–17 percent growth year on year in the fourth fiscal quarter of 2024.

The firm has high hopes for Red Hat looking ahead, with IBM potentially forecasting 13 percent fiscal year 2026 growth year on year for the open-source division.

IBM could leverage Red Hat’s OpenShift platform as a container orchestration play to coincide with greater AI inferencing happening on premises, Bank of America said in a report earlier this month. Containerized deployments can help extend IBM’s software stack to on-premises use cases.

IBM Consulting Results

IBM’s consulting wing–No. 6 on CRN’s 2025 Solution Provider 500–should report growth year over year of 1 percent in the most recently finished fiscal quarter, according to Bank of America’s report in January. The firm expects IBM to forecast 2 percent growth year on year in the 2026 fiscal year.

Executives on Wednesday’s call might shed some light on the progress of integrating recently acquired companies aimed at boosting IBM Consulting as well as the M&A strategy ahead.

In November, IBM completed its acquisition of Dallas-based SAP consulting firm Cognitus, a move that should help consulting with multi-country SAP S/4HANA Cloud program support, expanded service coverage in more geographical regions and new capabilities for regulated industries using IBM’s sovereign cloud.

In October, IBM revealed that it had acquired Austria-based hybrid cloud estate migration, modernization and optimization software provider Txture to complement consulting’s application migration and modernization (AM&M) and cloud technology strategy offerings.