With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

The 300 companies on this year’s list brought in over $12.5 trillion in revenue for the latest 12 months, with the median revenue figure at $24 billion.

America's Most Innovative Companies

AI is a major force shaping this year’s list—but it’s far from the only story.

World's Most Admired Companies

The corporations on our annual list of the world's 500 largest companies combined to generate $41.7 trillion in revenue over the past year.

Fortune Global 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The 300 companies on this year’s list brought in over $12.6 trillion in revenue for the latest 12 months, with the median revenue figure at $22 billion.

Leaders in all industries rely more than ever on Big Tech—and appreciate the giants that deliver, at scale, without drama.

The corporations on our annual list posted aggregate revenues of $41 trillion for the second year in a row.

Industries included in the sector are computers, internet services, IT services, semiconductors, and software companies.

Fortune Sector Leaders: Technology

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The 200 companies on this list are transforming industries from the inside out.

The 26th edition of the list shows how much esteem Big Tech giants command among other business leaders.

WMA 2024-IBM

The 25th Fortune World’s Most Admired Companies list suggests that tech giants’ peers respect them as much as ever.

WMAC 2023-IBM

The corporations on our annual list of the world’s largest companies delivered a record $41 trillion in aggregate revenues.

The essential guide to a sector that’s now attracting one out of every four startup investment dollars.

AI-Innovators-2023-IBM

Big Blue, based in Armonk, N.Y., was early to the AI game with Watson, which was first introduced over two decades ago, mesmerizing the world with what the tech could do. In 2023, the company launched its generative AI offerings, called Watsonx, with the conviction that the technology will bring about a productivity boom. CEO Arvind Krishna expects close to a third of current roles at the company can be taken over by AI and automation in the next five years, freeing up human staff for high-value work. The benefits from boosting productivity could mean reinvestment and larger margins, Krishna suggested. For its part, IBM’s Watsonx already has clients like NASA and Wix on board. The company also brings AI to clients to assist them with automation, modernization, and providing customer care services. For instance, Brazilian bank Bradesco automated its customer service answers using Watson Assistant, responding to 283,000 questions monthly. IBM is focusing on expanding the use of its AI where it is scalable and relevant, while strengthening its position beyond a legacy IT business; it has committed to <a class="waffle-rich-text-link" href="https://newsroom.ibm.com/2023-09-18-IBM-Commits-to-Train-2-Million-in-Artificial-Intelligence-in-Three-Years,-with-a-Focus-on-Underrepresented-Communities">training 2 million</a> people in AI over the next three years. It acquired software company Apptio in a $4.6 billion deal to complement its AI portfolio and Red Hat cloud business.

Fortune 50 AI Innovators

The 300 companies on this list are transforming industries from the inside out.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

F500 2023 065 IBM_quantum-computers-and-accelerated-discovery_40645906341_o

Information technology company IBM delivered $60.5 billion in total revenue in 2022, with its hybrid cloud unit accounting for $22.4 billion of that sum. 
<ul> 
 	<li>Still, sales growth stagnated at the end of 2022, and IBM said it would cut about 3,900 jobs.</li> 
 	<li>In May 2023, IBM said it would give $100 million to the University of Chicago and the University of Tokyo to aid in the building of a quantum-centric supercomputer within a decade.</li> 
 	<li>A longtime A.I. leader, IBM stepped into the current ChatGPT-inspired frenzy in May 2023 by unveiling Watsonx, a platform that offers tools for building A.I. models and access to pretrained models that can generate code and text.</li> 
</ul>

Just as it dominates our economy, Big Tech now dominates Fortune’s annual ranking of corporate reputation.

WMAC-2022-46-IBM

Aggregate sales hit $37.8 trillion last year—an increase of 19%, the highest annual growth rate in the list’s history.

Fortune's annual list dedicated to the idea that business is uniquely suited to address society’s biggest challenges.

CTW.1122. IBM

To help businesses adapt to climate-change-related disruptions, IBM recently launched its Environmental Intelligence Suite, software-as-a-service incorporating an extensive weather data set with powerful A.I. EIS is already being used by freight giant Norfolk Southern to fight freezes on rail lines, and by Brazilian biofuel maker BP Bunge Bioenergía to forecast high-risk areas for wildfires.

Change the World

This year’s Fortune 500 marks the 68th running of the list.

F500 2022-IBM

IBM generated $57.4 billion in revenue from continuing operations in 2021, up from $55.17 billion in 2020. That’s not enormous growth, but it’s a step in the right direction for a company that has been coping for a decade with declining revenue from the IT-management and hardware businesses that used to be at its core. CEO Arvind Krishna has been working to bolster IBM’s presence in cloud software, business automation, and artificial intelligence. The company has recently won plaudits for its Environmental Intelligence Suite, an A.I.-powered system designed to help other companies manage their CO2 emissions and predict and prepare for climate-related threats.

After a year in which humanity leaned more heavily than ever on tech giants, see which companies topped Fortune's ranking of corporate reputation.

WMAC 2021-41-IBM

Our 2021 list of the 100 best companies to work for, as ranked by their employees. See which companies made the list.

100 Best Companies 2021-73-IBM

Big Blue was under new leadership in 2020 after Arvind Krishna took over for Ginni Rometty as CEO just after the pandemic shut down IBM offices around the world. Adding some of the most rigorous safety measures, IBM has not had a single known case of workplace transmission of COVID-19. The company also offered additional weeks of paid emergency leave for employees dealing with the pandemic and backup child and elder care options. IBM also joined with the U.S. government and other researchers attacking COVID-19 and provided free access to its supercomputers. IBM also reached out to offer resources to historically Black colleges and universities, and CEO Krishna backed specific legislative recommendations for Congress to address racial justice. The company’s “dedication to diversity seems to be consistently reflected in programs and initiatives, rather than just in statements of support,” an employee said. “Actions follow words in meaningful ways.”

Fortune 100 Best Companies to Work For

Total revenue for the world’s biggest companies fell 4.8% to $31.7 trillion this year—the first decline in half a decade.

G500 121 IBM

International Business Machines’ big news in 2020 was the promotion of 30-year company executive Arvind Krishna to the CEO job, succeeding Ginni Rometty. IBM stock has been in a long swoon since 2013, even as the overall market has rocketed; the company needs a revised strategy, and Krishna has wasted little time pursuing one. In October 2020, he announced plans to spin off the business that manages IT infrastructure for other companies—IBM stock rose on the news—and he has been acquiring smaller businesses to build up IBM’s strength in cloud software for business automation. His strategic direction is no surprise; he had been following it even before he was CEO, championing IBM’s acquisition of the Red Hat enterprise software firm in 2019. Judging his success so far is difficult because the pandemic muddied comparisons with past performance.

These companies foster supportive cultures, where employees find opportunities for growth with help from their colleagues.

Best Large Workplaces New York 2021-IBM

Employees say: 
 
“IBM strongly believes in providing training opportunities to their employees. For example, it's mandatory for employees to take at least 40 hours of training in a given year. There is a very large selection of training courses to enroll in.”

Best Large Workplaces in New York

Caring leaders at the Best Workplaces in Technology have been preparing their companies to thrive as the business world emerges from the COVID downturn.

Best-Workplaces-in-Technology-Large-IBM

Employees say: 
“I do believe there is a very great level of work-life balance, especially since the pandemic has hit. Management teams are very compassionate and sympathetic to our needs.” 
Read the Great Place to Work review .

Best Large Workplaces in Technology

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-42-IBM

For an astounding 13th straight year, Apple claims the top spot in Fortune’s annual ranking of corporate reputation, based on a survey of almost 3,800 executives, directors, and analysts.

This year's Fortune Global 500 generated $33.3 trillion in revenues and $2.1 trillion in profits.

G500-2020-118-IBM

In 2019 IBM took the most dramatic step yet in its years-long project of adapting to a fast-changing tech environment, one in which Big Blue's historic dominance has been steadily eroded. In its largest acquisition ever, IBM spent $34 billion to buy Red Hat, the main distributor of the open-source operating system Linux. But progress on the company's top priorities—cloud computing, social engagement, mobile devices, and data analytics—has remained frustratingly slow, with revenue shrinking by 3% in 2019. This spring, however, the venerable computer giant got a new leader to take it forward. In April 2020, Arvind Krishna took the reins as CEO from Ginny Rometty, who had been serving in the role since 2012 and who remains executive chairman.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-038-IBM

In 2019 IBM took the most dramatic step yet in its years-long project of adapting to the fast-changing tech environment. It bought Red Hat, the main distributor of the open-source operating system Linux, paying $34 billion in its largest acquisition ever. But progress on CEO Ginni Rometty’s top priorities—cloud computing, social engagement, mobile devices, and data analytics—remained frustratingly slow. Revenue shrank; IBM’s Fortune 500 rank has declined every year for over a decade. In January 2020 the company announced that Rometty would step down after eight years as CEO, to be succeeded by longtime executive Arvind Krishna, who took over in April.

Here are the World's Most Admired Companies for 2019 as ranked in their industries. See who made the list.

This year's Fortune Global 500 generated $27.7 trillion in revenues and $1.5 trillion in profits.

This year's Fortune 500 marks the 65th running of the list.

These 52 companies from across the globe are doing well by doing good.

Here are the World's Most Admired Companies for 2018 as ranked in their industries. See who made the list.

This year's Fortune 500 marks the 64th running of the list.

Here are the World's Most Admired Companies for 2017 as ranked in their industries. See who made the list.

This year's Fortune 500 marks the 63rd running of the list.

Here’s our look at 50 companies that do well by doing good.

Here are the World's Most Admired Companies for 2016 as ranked in their industries. See who made the list.

This year's Fortune Global 500 generated $27.6 trillion in revenues and $1.5 trillion in profits.

This year's Fortune 500 marks the 62nd running of the list.

Business insiders have spoken: Asked which companies they most admire, more than 4,100 executives, directors, and analysts chose these top 50 All-Stars.

The world's 500 largest companies generated $31.2 trillion in revenues and $1.7 trillion in profits in 2014. Together, this year's Fortune Global 500 employ 65 million people worldwide and are represented by 36 countries.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Nike, Cisco, MasterCard, SABMiller, Vodafone, Google—and 45 other companies that are doing well by doing good.

Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Best Companies

Years on list

U.S. job openings

Year founded

Perks

100% health coverage

Unlimited sick days

Telecommuting

Job sharing

Subsidized childcare

Compressed work weeks

Fully-paid sabbaticals

On-site fitness/subsidized gym

On-site medical care facility

Non-discrimination policy includes sexual orientation

Sick days for part-timers

College tuition reimbursement

Student loan debt repayment

Paid Time Off: Full-time Employees

PTO limit (days)

# Sick days

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# of job applicants

Avg. # of applicants per opening

Change The World

Impact Segment

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Innovation

People Management

Use of Corporate Assets

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Quality of Management

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EPS % Change (10 year annual rate)

Total Return

Total Return to Investors (last year)

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Total Return to Investors (10 year, annualized)

IBM is a cornerstone of U.S. business that is best known for its software, cloud computing services, and consulting. Incorporated in 1911, and later rebranded as International Business Machines, the company has ridden the many waves of innovation over the decades, from early technology such as tabulating machines, and time clocks for employee punch-ins, to today’s advancements in artificial intelligence. As of 2024, it was among just a few dozen companies to have appeared on the Fortune 500 every year since the list’s inception in 1955.

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International Business Machines (IBM): Company Profile, Stock Price, News, Rankings

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International Business Machines

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I will turn the meeting over to Olympia McNerney, IBM's Global Head of Investor Relations. Olympia, you may begin.

Thank you. I'd like to welcome you to IBM's second quarter 2026 earnings presentation. I'm Olympia McNerney, and I'm here today with Arvind Krishna, IBM's Chairman, President, and Chief Executive Officer, and Jim Kavanaugh, IBM's Senior Vice President and Chief Financial Officer. We'll post today's prepared remarks and a replay of today's webcast on the IBM investor website within a couple of hours. The earnings presentation is already available. To provide additional information to our investors, our presentation includes certain non-GAAP measures. For example, all of our references to revenue and signings growth are at constant currency. We've provided reconciliation charts for these and other non-GAAP financial measures at the end of the presentation, which is posted to our IBM investor website. Finally, some comments made in this presentation may be considered forward-looking under the Private Securities Litigation Reform Act of 1995.

These statements involve factors that could cause our actual results to differ materially. Additional information about these factors is included in the company's SEC filings. With that, I'll turn the call over to Arvind.

Thank you for joining us today. As you saw in our pre-announcement, our second quarter performance fell short of expectations. Consistent with our commitment to transparency, we shared the results as soon as our financial close process was substantially complete. I won't revisit the details from the pre-announcement, as Jim will provide additional context. Instead, I will focus on the positioning of our business, the growth opportunities we see ahead, and actions we are taking to address execution in the quarter. Our conviction in the strength of our business and our ability to grow and drive shareholder value remains unchanged. We recognize that the technology spending environment remains dynamic, and we must continue to evolve how we engage clients, bringing the full breadth of IBM's innovation to bear on their most important priorities.

As clients determine how and where to deploy AI, we believe our portfolio is well-positioned to help them realize value in a secure, cost-effective, and scalable way. Over the last five years, we have transformed our business, improved the durability of our revenue growth, and strengthened our operating model. Those fundamentals remain intact. Software is nearly 45% of our total revenue and has been repositioned to higher-growth end markets across hybrid cloud, data, automation, and mission-critical transaction processing software running on mainframe. Our offerings help clients build and run applications and AI anywhere, unlock the value of their data, orchestrate and govern AI at scale, and operate more efficiently, securely, and resiliently. Our second quarter software shortfall was limited to a CapEx-sensitive area of the portfolio.

The vast majority of our software business, about 80% of that revenue, is recurring in nature and delivered healthy growth in the quarter, reflecting the demand for our offerings and giving us confidence in our growth opportunity. Our AI strategy is the right one for IBM and aligns to what we are known for: hybrid, sovereignty, and trust. We have held the view for a while that the unprecedented investment in AI infrastructure and models will increase pressure on enterprises to generate meaningful returns from that spend. Value will increasingly shift towards the orchestration and data layers so that clients can optimize outcomes, cost, and governance across multiple models and agents and keep control of their proprietary data. IBM's differentiation lies in our neutrality and enterprise-grade operational control, the ability to orchestrate agents across models, clouds, and on-premises environments, while also providing built-in observability, evaluation, governance, identity management, and security.

Watsonx Orchestrate is the control plane that helps clients build, manage, and govern agents, which, combined with Red Hat, gives clients a foundation to run inference and applications on any infrastructure. Bob is our entry point into the developer ecosystem, helping clients build enterprise-ready AI applications and agents while creating a natural pathway to adoption of watsonx Orchestrate and IBM's broader AI platform. Confluent delivers real-time governed data to models and agents across our control plane. Concert provides enterprises with a unified view of application health, security, compliance, and operational performance. Clients remain in the early stages of AI adoption, making our combination of consulting expertise and technology a key differentiator. We are helping move clients to deployment, and that's translating into growing demand across consulting, led by generative AI. In infrastructure, despite challenges this quarter, z17 is having the best refresh cycle in reported history.

Transaction volumes, cyber requirements, and resilience continue to drive growth for the mainframe. While clients continually evaluate workload placement, we see no evidence of clients moving off the mainframe. z17 remains at nearly 130% program to program, well ahead of z16, which was our strongest on record. IBM Z runs over 70% of the world's transaction volume in terms of value. To give you perspective on our reach, there are over 140 million installed MIPS running mission-critical transactions across every industry. Clients representing 85% of these installed MIPS are either maintaining or growing capacity. Earlier this month, we introduced a smaller LinuxONE system that allows clients to address data center space and cost constraints while offering the security, resiliency, real-time inferencing the Z platform can deliver. This innovation expands our addressable market. Distributed infrastructure just delivered its best quarter of revenue growth on record, growing 37%.

We see this as an increasingly important growth vector for IBM, driven by AI adoption and the rapid growth of enterprise data. We have been investing across Power and Storage, AI infrastructure to position ourselves for this market opportunity. Power continues to gain momentum as the value proposition of Power11, resiliency, performance, and Linux modernization resonates with clients. We are gaining share in Storage through differentiated offerings across flash, fusion, and tape, including AI-enabled capabilities that help clients scale and manage data for AI. Demand remains strong, driving a robust pipeline and positioning us well for the second half of the year. We are acting decisively to capture new market opportunities as they arise. The Mythos release in early April has accelerated the discovery of security vulnerabilities for clients.

This creates a multi-billion-dollar TAM for IBM and Red Hat to help clients secure their open source software through our new capability, Lightwell. IBM offers a differentiated value proposition as a leader in open source through Red Hat and also recent acquisitions of Confluent and Hashi. Clients can subscribe to Lightwell for $1 million per year to access open source packages that have been remediated or validated. In the first two weeks of availability, we have already made more than 7,500 package versions available. Early adopters of Lightwell include organizations like Bank of America, BNY, Citi, Goldman Sachs, JPMorgan Chase, Mastercard, Morgan Stanley, Royal Bank of Canada, State Street, Visa, Wells Fargo, and more. Finally, quantum computing is no longer decades away. It is upon us, we are investing aggressively.

Recently with the U.S. Department of Commerce, we announced a letter of intent to build Anderon, the world's first pure-play quantum foundry, supported by $1 billion in chips incentives provided by the Department of Commerce and a $1 billion-dollar cash contribution by IBM. Shortly after that, we disclosed plans to invest more than $10 billion in quantum over the next five years, spanning R&D, CapEx, manufacturing scale-up, M&A, and ecosystem expansion. This supports our roadmap to installing in 2029, the world's first large-scale, fault-tolerant quantum computer. Recently, IDC evaluated 11 quantum computing vendors and ranked IBM first overall, citing our ecosystem readiness for quantum advantage, our track record of delivering the roadmap on time, and our quantum classical integration. With the portfolio we have and the opportunities ahead, it comes down to execution. That is where we fell short in the second quarter.

We have engaged with clients on the transactions that slipped and have a clear understanding of what needs to change. We are adapting to deliver greater business value to clients around our innovation and greater economic value to better align with client priorities. At the same time, we are accelerating productivity actions across the company, spanning both spend reduction initiatives and actions designed to drive growth. These include leveraging AI to improve software development productivity, increasing the effectiveness of our sales and marketing organization, and accelerating our supply chain. Together, these actions help enhance our margin and free cash flow commitments while improving our ability to capture the growth we see ahead. For this growth, we are also accelerating changes to our go-to-market model. The goal is to expand coverage across thousands of additional clients where our portfolio is highly relevant and where we see significant wallet share opportunities.

While IBM has a strong presence within the Fortune 1000, there is a lot of opportunity beyond this. These changes are aligned with the areas of our business demonstrating strong momentum, including Red Hat, HashiCorp, Confluent, watsonx, and Storage. As AI adoption moves from experimentation to enterprise-scale deployment, we are also investing in more specialized technical and client-facing talent, including forward-deployed engineers. Our conviction in the strength of our business and our ability to capture the growth opportunities ahead remains unchanged. We now expect revenue growth for the full year in a range of 4%-5%. We continue to expect to grow free cash flow by about $1 billion this year as we accelerate our productivity initiatives. With that, let me hand it over to Jim to go through the financials.

Thanks, Arvind. In the second quarter, we delivered 1% revenue growth, 30 basis points of operating pre-tax margin expansion, and 5% diluted operating earnings per share growth. Through the first half, we generated $4.8 billion of free cash flow. Let me go through what played out in our segments in more detail. Software revenue grew 5% this quarter, with flat organic revenue growth. As Arvind discussed in our pre-announcement, in the final weeks of June, we saw a shift in client spending priorities. Many clients redirected spending towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. As a result, tens of large deals failed to close on the timelines we expected, accounting for the majority of the shortfall.

To understand these dynamics, it is important to recognize that many clients purchase mainframe and the associated software stack through our enterprise license agreements, which create a strong incumbency moat for IBM and are generally treated as capital investments. These agreements typically contain a high concentration of transaction processing software, although they may also include data and automation products. As clients prioritize other CapEx investments, the timing of these deals shifted, resulting in transaction processing revenue declining 9%, while data grew 18% and automation grew 3%. In contrast, we continue to see strong underlying demand in our subscription and consumption-based software. Because these are generally purchased as operating expenditures, they were largely unaffected by the CapEx dynamics that impacted some of our ELA transactions during the quarter. Let me take a step back and discuss the composition of our software revenue.

We offer customers flexible purchasing options that align technology investments with their business needs, making it easier to adopt and scale solutions across their businesses. About 80% of our annual software revenue is recurring and is made up of subscription and consumption-based revenue like our Red Hat, HashiCorp, and Confluent products. It also includes subscription and support revenue that provides customers with ongoing access to software enhancements and support. This revenue grew nicely in the quarter, and our ARR was $24.6 billion, up 8% since last year. The other 20% of software revenue is transactional in nature and is predominantly related to the incumbency with mainframe and the associated enterprise license agreements with transaction processing and other software products in data and automation. ELAs are highly valuable to IBM because they establish long-term, strategic client commitments that expand adoption across our software products, creating a multiplier effect.

Transactional revenue was down high single digits in the quarter, given the shift in buying patterns we have discussed. HashiCorp had another record bookings quarter and accelerated revenue growth through the first half of the year. Confluent is off to a strong start and on track with our expectations after its first full quarter post-close. Red Hat growth accelerated one point sequentially to 11%, driven by improvement in the subscription piece of the business and stable growth in consumption-based services. OpenShift ARR is now $2.2 billion, with strong growth reflecting demand of our containerization and virtualization products, where we now have about $680 million of contracts signed since early 2024. In RHEL, performance continued to be impacted by constrained hardware availability, similar to last quarter. Infrastructure revenue declined 7% this quarter.

While Z performance was below our expectations through the first five quarters of z17 availability, revenue is well ahead of the prior cycles at nearly 130% program to program. As Arvind said, we see no evidence of clients moving off mainframe. Clients continue to invest in IBM Z to modernize mission-critical workloads with a focus on resiliency, security, and increasingly enabling AI on the platform. AI is driving incremental capacity growth and new workloads as clients look to run AI closer to their most sensitive data.

We are seeing strong early adoption of our AI innovations, with nearly 50% of z17 customers investing in AI capabilities with Spyre Accelerator, and clients deploying watsonx Code Assistant for Z are growing MIPS capacity three times faster than those who are not. In a world where infrastructure costs are rising and efficiency matters more than ever, IBM Z offers a compelling economic advantage.

Depending on the size and complexity of workloads, clients can realize a 2 to 15x total cost of ownership benefit versus moving these workloads off the platform, reinforcing why the platform remains central to their operations and positioning us to capture additional value as AI workloads grow. Adding to Arvind's comments on the strength in Distributed Infrastructure, we exited the quarter with approximately $500 million of backlog, our highest on record, supporting continued momentum. In Consulting, signings grew 6%, marking our second consecutive quarter of growth and reflecting continued client investment in business transformation initiatives. Revenue grew 1%, driven by demand for application modernization, data transformation, and cybersecurity services as clients balance the needs to increase productivity through AI with the need to strengthen resiliency and manage risk. Revenue growth was balanced, with both strategy and technology and intelligent operations up 1%.

Generative AI represented about 50% of our signings in the quarter and now makes up over 30% of our backlog, underscoring the demand for AI-powered transformations that extend beyond technology modernization into core business operations. As clients move from pilots to enterprise-wide deployment, they are increasingly turning to IBM Consulting to re-engineer business processes and unlock productivity and new business value through AI, automation, and digital labor. Let me now discuss profitability. Operating gross profit margins were down 70 basis points, largely driven by our revenue shortfall and mix. Despite this shortfall, productivity actions were ahead of plan, providing the flexibility to absorb Confluent-related dilution, continued investing for growth, and expanded adjusted EBITDA and operating pre-tax margins by 20 and 30 basis points, respectively. Segment profit margin expanded by 160 basis points in IBM Consulting and 110 basis points in IBM Software, driven by ongoing productivity actions.

Infrastructure segment profit margin declined 150 basis points, reflecting the IBM Z mix headwind mitigated somewhat by strong Distributed Infrastructure margins. Through the first half of the year, we generated $4.8 billion of free cash flow, flat year-over-year, driven by about $700 million increase in adjusted EBITDA, offset by inventory, higher cash taxes, and net interest expense. Given the constrained infrastructure supply environment, we proactively took actions through the first half to strengthen our supply chain and support anticipated customer demand in the second half, reflecting the strength we see in our infrastructure business. We exited the second quarter with a strong liquidity position and a solid investment-grade balance sheet. With cash of $8.2 billion, we returned $3.2 billion to shareholders in the form of dividends through the first half of the year.

Our debt balance ending the quarter was $62 billion, including debt of $13 billion for our financing business, with a receivables portfolio that is 80% investment grade. Over the last five years, we have repositioned our business to higher growth end markets, improved the durability of our revenue, and expanded operating pre-tax margins and free cash flow through disciplined execution and laser focus on productivity. As Arvind mentioned, we are confident in our portfolio and strategy and the growth opportunities we see ahead. Let me now address our expectations for the remainder of the year. We now expect revenue growth for 2026 in the range of 4%-5% and are maintaining our expectation to grow free cash flow by about $1 billion. We believe the low end of the revenue range appropriately reflects the current environment and is our base case.

Given the second quarter shortfall, we are revising our software growth expectation to a range of 6%-8% for the full year. While several of the deals that slipped from the second quarter have already closed in the first few weeks of the third quarter, the low end of the software range assumes that recent spending dynamics persist through the second half. The high end assumes a more typical conversion of our pipeline. In light of the strong demand environment in Power and Storage, we now expect infrastructure to grow low single digits in 2026, driven by growth in Distributed Infrastructure and continued strong program-to-program performance in IBM Z through the second half of the year. Demand across Storage and Power remains strong, and we continue to secure inventory and accelerate our supply chain to capitalize on the opportunities we see in front of us.

In consulting, the quality of our backlog and momentum in GenAI continue to support an acceleration in revenue growth to low to mid-single digits for the year. We continue to see strong fundamentals of our business play out in the second half of the year as we accelerate our productivity initiatives to help enhance our margin and free cash flow commitments while continuing to invest in growth. These actions include deploying AI and automation at greater scale across the company, reducing third-party spend, improving sales and marketing efficiency, using AI to drive more efficient software development, optimizing our supply chain, and enhancing services delivery. While revenue dynamics are creating margin pressure for the year, the pace of our productivity actions have exceeded our expectations. As a result, we now expect to deliver 100 basis points of operating pre-tax margin expansion, with productivity more than offsetting the revenue-related headwinds.

Our operating tax rate for the year should be in the mid-teens. The timing of discrete items can cause the rate to vary within the year. For the full year, we continue to expect to grow free cash flow by about $1 billion. The primary driver of this growth will be adjusted EBITDA, offset by cash tax headwinds, higher CapEx, and higher net interest expense, the majority of which is behind us. Looking to the third quarter, we expect constant currency revenue growth consistent with the full year. Given the strengthening of the dollar, we now expect currency to be a 1.5 point headwind to revenue growth in the quarter. For operating pre-tax margin, we expect similar performance to the second quarter. Our third quarter operating tax rate should be in the mid-teens. Let me close by saying that our strategy has not changed.

We are a leader in hybrid cloud. We are investing behind an AI opportunity that plays directly to IBM's strengths in data, orchestration, and enterprise trust. We continue to build leadership in quantum. We remain confident in the growth opportunities ahead of us and our ability to capture them. Arvind and I are now happy to take your questions. Olympia, let's get started.

Thank you, Jim. Before we begin Q&A, I'd like to mention a couple of items. First, supplemental information is provided at the end of the presentation. Second, as always, I'd ask you to refrain from asking multi-part questions. Operator, let's please open it up.

Thank you. At this time, we will begin the question-and-answer session of the conference. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Amit Daryanani with Evercore ISI. Please state your question.

Yep. Thanks for taking my question. Good afternoon, everyone. I guess, Arvind, your commentary strongly suggests that the headwinds we saw in June quarter were a result of customers just reallocating spend towards AI infrastructure rather than reducing overall IT budgets. I think the biggest debate everyone's had since the pre-announcement has been, is this demand deferred or destroyed for IBM? I'd love to understand, what gives you the confidence that this is more a timing issue versus a structural shift in enterprise spending? What milestones should we all be watching for over the next couple of quarters to gauge if demand truly starts to normalize for you folks? That'd be really helpful. Jim, I have to acknowledge the very impressive free cash flow guide from you folks, despite the June quarter blip.

Maybe just unpack a little bit on the building blocks behind your ability to maintain the free cash flow target as well. Thank you very much.

Amit, thanks for the question. Well, given that you used the word impressive, I'm going to ask Jim to address the impressive part first, and then I will address your question on the priorities.

Thanks, Arvind, and thanks, Amit, for the question. I think it's a great place to start this call here tonight. Free cash flow, as you all know, has been one of the two key leading indicators of our financial investment thesis and our shareholder value creation model inside IBM. When you look at first half, we produced roughly about $5 billion of free cash flow. That was flat year-over-year. The underpinnings really are driven by the fundamentals.

The productivity mindset in this company and the ability to generate operating leverage is extremely strong overall. Adjusted EBITDA was up high single digit. As I said in the prepared remarks, it was offset by higher inventory, cash taxes, and net interest, which by the way, the latter two I've been talking about all year long. Let's take a step back. We entered this year with extreme momentum and confidence in what we guided. We guided free cash flow up about $1 billion year-to-year with record free cash flow margins. We said that was going to be entirely driven by the quality and sustainability of the fundamentals of our business, adjusted EBITDA, with some headwinds on cash tax CapEx to invest in our business and net interest.

International Business Machines (IBM) Q2 2026 Earnings Call Transcript

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