IBM Capitalizes on Hyperscaler AI Infrastructure Growth, Reports Mixed Q3 Results

IBM Positions Itself as Hyperscaler AI Beneficiary

IBM is reportedly positioning itself as a “direct beneficiary” of hyperscaler investments in artificial intelligence infrastructure, according to statements made during the company‘s third-quarter earnings call. Chief Financial Officer Jim Kavanaugh indicated that rather than competing directly with cloud giants, IBM is leveraging partnerships to drive growth in both software and consulting segments.

IBM Positions Itself as Hyperscaler AI Beneficiary
Strategic Partnerships Drive Growth
Expanding AI Capabilities Through Groq Partnership
Mixed Q3 2025 Financial Performance
Segment Performance and Future Outlook
Financial Position and Additional Developments

Strategic Partnerships Drive Growth

Sources indicate that IBM maintains deep partnerships with all major hyperscalers, including Google, Amazon Web Services, and Microsoft. The company has also emerged as “one of CoreWeave’s large clients,” according to the earnings report. Rather than expanding its own GPU infrastructure, IBM reportedly enables customers to deploy IBM software on various cloud platforms.

Kavanaugh provided a specific example during the call: “If I take one of our very large health insurance clients, as they think through where they’re going to deploy their AI models, they do not like deploying in a public instance, but they’re perfectly fine getting a private instance in a cloud and deploying models there, deploying our software stacks there, and getting growth.”

Expanding AI Capabilities Through Groq Partnership

The company also highlighted its recent partnership with AI chip startup Groq, which enables agentic AI capabilities through GroqCloud on IBM WatsonX Orchestrate. According to reports, this collaboration extends beyond cloud deployment to include on-premises implementations.

“We also tend to, in some cases, for example, we are deploying Groq in people’s own data centers,” Kavanaugh stated. “That’s a big opportunity that’ll show up in revenue for us, both in consulting as well as in software, because on top of the Groq infrastructure, we tend to put our software stacks in some instances.”

Mixed Q3 2025 Financial Performance

Despite the strategic positioning, IBM’s third-quarter results reportedly fell short of analyst expectations. Total revenue reached $16.3 billion, representing a nine percent year-over-year increase. Infrastructure revenue contributed $3.6 billion to this total, growing 17 percent year-over-year, though this marked a decline from the previous quarter’s $4.1 billion infrastructure revenue., according to further reading

The hybrid infrastructure segment showed particularly strong growth, increasing 28 percent year-over-year, significantly outpacing the previous quarter’s 19 percent growth. Meanwhile, the IBM Z mainframe program grew 61 percent year-over-year, slightly slower than the previous quarter’s 67 percent growth rate.

Segment Performance and Future Outlook

Software remained IBM’s largest segment with revenues of $7.2 billion, while consulting brought in $5.3 billion, up three percent year-over-year. The hybrid cloud segment, including Red Hat, grew 14 percent, slightly below the expected 16 percent growth. Despite this, analysts suggest the company maintains confidence in Red Hat’s overall growth opportunities.

CEO Arvind Krishna commented on the company’s latest mainframe launch: “Albeit early, we’re 130 percent program to program on IBM z17 off of a z16, which was the most successful program in the history of IBM. Higher capacity opportunity creates higher monetization opportunity, creates higher price opportunity, creates higher value creation opportunity.”

Financial Position and Additional Developments

The company reported gross profit of $9.4 billion with a margin of 57.3 percent. IBM ended the quarter with $14.9 billion in cash and total debt of $63.1 billion, while estimating full-year free cash flow of $14 billion.

Additional developments highlighted in the report include IBM’s quantum computing advancements, featuring a recent agreement with AMD to build quantum-centric supercomputing architectures and the deployment of an IBM Quantum System Two in Spain—the first in Europe and second outside the United States.

The company also addressed a cloud outage affecting 10 regions during the quarter, which was reportedly resolved within two hours. Following the earnings announcement, IBM shares declined by approximately five percent, though they have risen around 31 percent year-to-date according to market data.