IBM Stock Drops 5% Despite AI Revenue Surge to $9.5B

IBM shares fell 5% in after-hours trading despite reporting Q3 2025 earnings that exceeded Wall Street expectations. Revenue reached $16.33 billion with adjusted earnings of $2.65 per share, yet investor focus shifted to slowing growth in the high-margin Red Hat hybrid cloud business, which decelerated to 14% from 16% in the prior quarter.

The company's AI book of business grew by $2 billion sequentially to $9.5 billion, demonstrating strong momentum in artificial intelligence offerings. However, this positive development was overshadowed by concerns about software segment performance, where Red Hat's constant currency growth slowed to 12% from 14% in Q2.

CEO Arvind Krishna emphasized accelerated performance across all segments, but market reaction suggests investors remain wary of the cloud computing division's trajectory. The divergence between IBM's AI success and traditional software challenges highlights the complex dynamics facing legacy tech firms in the cloud era.