IBM closed out the year with a stronger-than-expected fourth quarter, reinforcing the company’s narrative that its long-running reinvention around software, artificial intelligence, and hybrid cloud is gaining traction, even as growth moderates from last year’s pace.

The technology giant reported adjusted earnings per share of $4.52 for the quarter, ahead of analysts’ expectations of $4.32, while revenue came in at $19.69 billion, topping the $19.23 billion forecast compiled by LSEG. Revenue rose 12% from $17.6 billion a year earlier, while net income nearly doubled to $5.6 billion, or $5.88 per share, compared with $2.92 billion, or $3.09 per share, in the same period last year.

For the full year ahead, IBM said it expects revenue growth to exceed 5%, a slowdown from the roughly 8% expansion recorded last year but still slightly ahead of Wall Street’s expectations. Analysts are forecasting sales growth of about 4.6% in 2026, according to LSEG. The company also guided for an additional $1 billion increase in free cash flow after generating $14.7 billion in 2025, underlining management’s focus on cash generation alongside growth.

Chief Executive Arvind Krishna framed the results as validation of IBM’s strategic shift. In a statement, he said the company’s generative artificial intelligence book of business has now surpassed $12.5 billion, a figure that reflects both consulting contracts and software tied to AI deployments.

“This capped a strong 2025 for IBM where we exceeded expectations for revenue, profit and free cash flow,” Krishna said.

IBM’s results highlight how the company has carved out a different AI narrative from many of its Big Tech peers. Rather than building massive consumer-facing models, IBM has focused on enterprise use cases, embedding AI into automation tools, data platforms, and hybrid cloud infrastructure. That approach was evident in the quarter’s segment performance.

Software revenue rose 14% to $9 billion, driven by demand for automation products, data and analytics tools, and Red Hat, the open-source software business that has become central to IBM’s hybrid cloud strategy. Red Hat, in particular, remains a key pillar as enterprises look to run workloads across on-premise systems and multiple cloud providers without being locked into a single platform.

Infrastructure revenue jumped 21% to $5.1 billion, helped by a sharp rebound in demand for IBM’s Z Systems mainframe computers. Sales in that line surged 67% year over year, reflecting a new product cycle and continued reliance by large enterprises, banks, and governments on mainframes for mission-critical workloads. The strength of the infrastructure business also underscores how IBM has managed to keep legacy technologies relevant by tying them more closely to modern software and AI capabilities.

Krishna also used the earnings call to reiterate IBM’s ambitions in quantum computing, saying the company is on track to deliver its first large-scale quantum computer by 2029. While still years away from broad commercial use, quantum computing is an area where IBM has long sought to establish technical leadership, and the timeline offers investors a clearer sense of how it fits into the company’s longer-term roadmap.

The results arrive at a time when investors are increasingly selective about AI exposure. After a surge of spending across the tech sector, markets have begun to scrutinize which companies can translate AI enthusiasm into durable revenue and cash flow. IBM’s emphasis on enterprise contracts, recurring software revenue, and free cash flow growth appears to be resonating, even if its growth rates trail those of faster-moving cloud-native rivals.

The company also returned cash to shareholders. IBM’s board approved a quarterly dividend of $1.68 per share, payable on March 10, extending its long-standing record of dividend payments and reinforcing its appeal to income-focused investors.

Overall, the quarter paints a picture of a company that has stabilized after years of restructuring and portfolio shifts. Growth is no longer accelerating, and management has been careful to temper expectations for the year ahead. But with AI bookings climbing, mainframes enjoying a cyclical rebound, and cash flow continuing to improve, IBM appears as a steadier, enterprise-focused beneficiary of the AI wave rather than a speculative one.

Microsoft Corp. delivered a solid earnings beat for its fiscal second quarter ended December 31, 2025, with adjusted earnings per share of $4.14, surpassing the Wall Street consensus of $3.97 and revenue of $81.27 billion, which exceeded the expected $80.27 billion.

Yet the stock plunged as much as 7% in extended trading on Wednesday, reflecting investor concerns over decelerating Azure cloud growth, heavy AI-related capital spending, and concentration risk in its massive backlog tied to OpenAI commitments.

Total revenue rose 17% year-over-year (15% in constant currency) to $81.3 billion, driven by strong performance across its cloud and productivity segments. Net income on a GAAP basis reached $38.5 billion, or $5.16 per share, up significantly from $24.11 billion ($3.23 per share) in the prior-year quarter, bolstered by a $7.6 billion dilution gain from OpenAI’s restructuring into a public-benefit corporation that reduced Microsoft’s ownership stake.

The Microsoft Cloud segment, encompassing Azure, Office 365, Dynamics 365, and LinkedIn, crossed $50 billion in quarterly revenue for the first time at $51.5 billion, up 26% (24% constant currency). Within that, the Intelligent Cloud group—including Azure and server products—generated $32.9 billion, advancing 29% (28% constant currency) and exceeding StreetAccount’s $32.4 billion estimate.

Azure and other cloud services specifically grew 39% (38% constant currency), a modest slowdown from the prior quarter’s 40% pace and slightly below some analyst forecasts of 39.4%. Guidance for the fiscal third quarter (ending March 2026) called for revenue of $80.65 billion to $81.75 billion, with the midpoint of $81.2 billion aligning closely with the $81.19 billion LSEG consensus. Azure growth was projected at 37% to 38% in constant currency, matching StreetAccount’s 37.1% view.

The implied operating margin for the quarter is around 45.1%, below StreetAccount’s 45.5% consensus, as the company continues pouring resources into AI compute capacity and talent. Chief Financial Officer Amy Hood highlighted the strength of the commercial remaining performance obligation (RPO)—a forward-looking measure of committed but unearned revenue—which ballooned 110% to $625 billion at quarter-end. Approximately 45% of this backlog stems from OpenAI’s $250 billion cloud commitment during the period, with the remaining portion growing 28% and described as “larger than most peers, more diversified than most peers.”

Hood emphasized Microsoft’s role as OpenAI’s “provider of scale,” while analysts like Jefferies’ Brent Thill raised questions about OpenAI’s ability to meet its financial obligations to Microsoft, Oracle, and other partners. Commercial bookings growth accelerated sharply to 230% from 112% in the prior quarter, reflecting robust enterprise demand for AI-infused services.

Microsoft 365 Copilot, the AI-powered add-on for Office productivity tools, now boasts 15 million paid commercial seats—up from prior undisclosed figures—within a base exceeding 450 million paid commercial Microsoft 365 seats, signaling meaningful but still early adoption. Capital expenditures and finance leases surged 66% to $37.5 billion, well above Visible Alpha’s $34.31 billion estimate, as Microsoft added nearly one gigawatt of AI compute capacity in the quarter alone.

Nadella noted customer demand continues to outstrip supply, requiring careful balancing between Azure allocations, first-party AI usage in Copilot and GitHub Copilot, R&D acceleration, and infrastructure refreshes. The Productivity and Business Processes segment, including Office, Dynamics 365, and LinkedIn, delivered $34.12 billion in revenue, up 16% and above StreetAccount’s $33.48 billion consensus. More Personal Computing—covering Windows, Xbox, Surface, and Bing—fell 3% to $14.25 billion, below the $14.38 billion estimate, dragged by a 9.5% decline in gaming revenue and an unspecified impairment charge in the division.

The results cap a period of heavy AI investment, with Microsoft raising prices on commercial Office subscriptions and securing a $30 billion cloud deal from Anthropic alongside capacity commitments. Despite the beat, the stock’s 11% decline over the past three months (versus the S&P 500’s 1% gain) reflects broader concerns that generative AI could disrupt traditional software growth, compounded by the heavy spending required to meet demand.

Now, Microsoft navigates this AI-driven inflection point, with the focus shifting to execution: converting its massive backlog into sustained revenue, managing capex without eroding margins, and proving Copilot’s monetization potential.

The U.S. trade deficit widened sharply in November, highlighting the uneven and often contradictory effects of President Donald Trump’s tariff-driven trade strategy as it continues to work its way through the economy.

According to data released Thursday by the Census Bureau, the overall trade shortfall jumped to $56.8 billion in November, a 94.6% increase from October. The surge marked a dramatic reversal from the previous month, when the deficit had fallen to its lowest level since early 2009, raising fresh questions about the durability of recent improvements in America’s external balance.

A substantial portion of the deterioration was linked to trade with Europe. Roughly one-third of the month-on-month increase came from the European Union, where the U.S. goods deficit widened by $8.2 billion. That rise suggests that transatlantic trade flows remain robust despite the imposition of tariffs and months of tense negotiations between Washington and Brussels.

By contrast, the deficit with China narrowed modestly, declining by about $1 billion to $13.9 billion. The smaller gap with Beijing reflects a combination of factors, including lingering tariff barriers, weaker Chinese domestic demand, and ongoing efforts by U.S. companies to diversify supply chains away from China toward other parts of Asia and Europe.

While tariffs have clearly dampened some bilateral trade, they have not eliminated America’s overall imbalance, instead redistributing it across trading partners.

On a cumulative basis, the U.S. trade deficit through November reached $839.5 billion, around 4% higher than the same period in 2024. The year-over-year increase underscores how difficult it has been to achieve a sustained reduction in the deficit, even as trade policy has become more interventionist.

The November data sit uneasily with the administration’s stated objectives. When Trump announced so-called reciprocal tariffs in April 2025, the White House pointed to bilateral trade deficits as evidence of unfair trading relationships and used those imbalances as a benchmark for determining duty levels. The logic was straightforward: higher tariffs would curb imports, encourage domestic production, and ultimately shrink the deficit.

In practice, the outcome has been far more complex. While tariffs have altered sourcing decisions and raised costs for foreign suppliers, they have also increased input prices for U.S. manufacturers and consumers, in some cases shifting demand rather than suppressing it. Strong domestic consumption, in particular, continues to underpin import growth, limiting the impact of tariffs on the headline deficit.

The widening gap with the EU illustrates this dynamic. Europe exports a large volume of high-value goods to the United States, including machinery, pharmaceuticals, vehicles, and industrial equipment, categories where American demand is relatively resilient. Even with higher tariffs, these imports have remained competitive, contributing to the November surge in the deficit.

Recognizing the economic and political costs of prolonged trade confrontation, the White House softened its stance as the year progressed. In August, the U.S. and the EU reached a framework agreement that set tariffs at 15% on most European goods and aimed to stabilize relations after months of uncertainty. The deal reduced the risk of further escalation and provided businesses with greater clarity, though it stopped short of fundamentally reshaping trade balances.

Economists have noted that trade deficits are shaped by forces that tariffs alone cannot easily offset. Currency movements, relative growth rates, fiscal policy, and consumer behavior all play critical roles. A large fiscal deficit and strong consumer spending tend to pull in imports, widening the trade gap regardless of tariff levels. At the same time, boosting exports often requires sustained investment in competitiveness, infrastructure, and productivity, not just barriers to imports.

The November figures also highlight a broader tension in U.S. trade policy: efforts to rebalance trade through tariffs can conflict with the realities of a consumption-driven economy. As long as U.S. households and businesses continue to spend at a healthy pace, imports are likely to remain elevated, and deficits may fluctuate rather than steadily decline.

Against this backdrop, the latest data suggest that while Trump’s tariffs have reshaped trade patterns and bargaining dynamics, they have not delivered a clear or lasting reduction in the overall deficit. Instead, they have produced sharp month-to-month swings and shifted imbalances among trading partners, leaving the longer-term challenge of external rebalancing unresolved.