How we source: figures on this page come from the company’s own filings (SEC 10-K, 10-Q and earnings releases, or its annual report), with the period stated next to each number. Last refreshed October 2026. Our methodology.
In short
IBM makes money mainly by selling software: Red Hat, automation, data and AI tools, and the programs that run its mainframes. Software brought in $30.0 billion of $67.5 billionrevenue in fiscal 2025 and produced $9.9 billion of the $16.4 billion total segment profit. Consulting and Infrastructure (mainly mainframes) make up most of the rest, and a small financing arm lends to clients buying IBM products.
IBM reports four segments. Software brought in $29,962 million in fiscal 2025, Consulting $21,055 million, Infrastructure $15,718 million and Financing $737 million. Software and Consulting together made up 75.5% of revenue.
IBM revenue by fiscal year, FY2021 to FY2025, from the company's filings. Chart: The Business Engineer.
Software is the profit engine. Its gross margin was 83.5% and its segment profit was $9,920 million, a 33.1% margin. Most Software revenue is recurring: IBM says annual recurring revenue was $23.6 billion at year-end 2025, about $2 billion more than a year earlier.
Infrastructure follows the mainframe cycle. IBM Z revenue rose 51.7% after the z17 launched in June 2025, and the segment grew 12.1% overall.
How IBM compares
Margins vary widely across IBM’s own segments. Software’s segment profitmargin was 33.1% in fiscal 2025, Infrastructure’s 22.0% and Consulting’s 11.7%. Financing earned 70.7% on a small revenue base.
Revenue has risen each year since fiscal 2021, from $57,350 million (continuing operations, after the Kyndryl spin-off) to $67,535 million in fiscal 2025, a 17.8% increase. Growth in fiscal 2025 (7.6%) was the fastest in that period.
What changed in FY2025
Net income rose 75.9% to $10,593 million. Much of that gain came because fiscal 2024 had included $3.1 billion of pension settlement charges. IBM’s non-GAAP operating earnings rose 13.5% to $10,993 million.
IBM revenue by line, prior year against FY2025, as reported. Chart: The Business Engineer.
IBM completed its purchase of HashiCorp and spent $8,294 million on acquisitions in the year. In December 2025 it agreed to buy Confluent for an enterprisevalue of about $11 billion, with closing expected by mid-2026.
Free cash flow was $14,734 million, up $1,986 million, and IBM paid $6,255 million in dividends.
What to watch
Consulting signings fell 13.3% to $21,757 million, although the trailing book-to-bill ratio was 1.03 and backlog rose to $31.9 billion.
Debt rose $6.3 billion to $61.3 billion, and interest expense rose 13.1% to $1,935 million. IBM says its generative AI book of business stood at more than $12.5 billion at its Q4 2025 results. About four-fifths of it is Consulting signings, so it is not a revenue figure.
Frequently asked questions
How does IBM make money?
Mostly from software. In fiscal 2025, Software brought in $29,962 million of IBM’s $67,535 million revenue. Consulting brought in $21,055 million, Infrastructure (mainframes, servers, storage and support) $15,718 million and Financing $737 million.
Which IBM segment is most profitable?
Software. It earned $9,920 million of IBM’s $16,364 million total segment profit in fiscal 2025, a 33.1% margin. Infrastructure earned $3,458 million, Consulting $2,464 million and Financing $521 million.
How big is IBM's generative AI business?
IBM says its generative AI book of business stood at more than $12.5 billion at its Q4 2025 results. The metric counts revenue, new contract value and signings since inception, so it is not annual revenue. About one-fifth comes from Software and four-fifths from Consulting.
How much cash does IBM generate?
IBM reported free cash flow (a non-GAAP measure) of $14,734 million in fiscal 2025, up $1,986 million. Cash from operations was $13,193 million, and IBM paid $6,255 million in dividends.
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
