IBM's first quarter since OpenAI's 97.9% COBOL score: mainframe down 20%, billing software up 9%
IBM's first quarterly report since OpenAI's 97.9% COBOL translation score split the argument: mainframe hardware revenue fell 20%, but the software that bills banks to run decades-old transaction code grew 9%, and IBM raised its full-year cash-flow outlook.
Vincent Jiang · 3 min read
Two days after OpenAI$1.18T — OpenAI, private, latest valuation $1.18T said its GPT-6.1 model translates COBOL, the 1960s language still running bank and government transaction systems, with 97.9% fidelity on the lab's own migration test 1, IBM+0.38% — IBM, up 0.38 percent today printed the first quarterly receipt the argument can be tested against. Revenue rose 5% to $17.1 billion 2, the shares added about 4% in extended trading 3, and the company raised its full-year free-cash-flow outlook to growth of more than $1 billion 2.
The panic has a price history
On February 23, 2026, Anthropic$350B — Anthropic, private, latest valuation $350B, the AI lab rival to OpenAI, said its Claude Code tool could automate the exploration and analysis work behind COBOL modernization, effort that once took armies of consultants, and IBM fell 13.2%, its worst day since 2000 4.
The market reversed that call by June 2, when the stock closed at a record $329.23 5. Then came July: a 25% one-day loss, the worst on record, after a profit warning, and a second quarter in which mainframe revenue fell 42% and full-year growth guidance came down to 4 to 5% 56.
Revenue growth stalled at 1% in the July quarter and rebounded tonight
Data
| Revenue growth, year over year | |
|---|---|
| Q3 '23 | 4.6% |
| Q4 '23 | 4.1% |
| Q1 '24 | 1.5% |
| Q2 '24 | 1.9% |
| Q3 '24 | 1.5% |
| Q4 '24 | 1% |
| Q1 '25 | 0.5% |
| Q2 '25 | 7.7% |
| Q3 '25 | 9.1% |
| Q4 '25 | 12.1% |
| Q1 '26 | 9.5% |
| Q2 '26 | 1.1% |
| Q3 '26 | 4.7% |
The split, line by line
Both camps got a column. IBM Z, the mainframe the labs say they can replace, fell 20% 2. The lines that bill banks for running old systems grew: Transaction Processing, the software that runs decades-old transaction code, rose 9%, rebounding from an unexpected decline last quarter; Data rose 19%; and Red Hat, IBM's Linux and hybrid-cloud software unit, rose 11% 23. Distributed Infrastructure, the server line feeding AI data centers, jumped 31% 2.
Finance chief James Kavanaugh said about 25% of Transaction Processing revenue was deferred deals finally closing; the remaining 75% was net new business 3. He also lifted IBM's full-year software growth outlook to 7 to 8 percent, from 6 to 8 percent 3. Consulting, the arm that would actually perform migrations, was flat 2. If banks were leaving, these billing lines would bleed first.
IBM Z fell 20% while the lines that bill banks for running old code grew
Data
| Value | |
|---|---|
| IBM Z | -20% |
| Automation | -3% |
| Consulting | 0.2% |
| Transaction Processing | 9% |
| Red Hat | 11% |
| Data | 19% |
| Distributed Infrastructure | 31% |
IBM sells to both sides
The clients the labs say they can liberate kept paying, and IBM collects on the counter-argument too: watsonx Code Assistant for Z, its own COBOL-to-Java tool, sits inside the same estate OpenAI's model wants to empty 1. Operating EPS of $2.95 beat the $2.86 estimate, while GAAP net income of $2.19 billion missed the $2.34 billion expected 237. The cash-flow raise rests on what the release calls productivity initiatives inside IBM, which Kavanaugh says fuel profit and free-cash-flow growth 2.
What the bears hold into the call
The OpenAI test covers isolated programs, not the copybooks, job streams and CICS transaction environments that make real bank migrations hard 1, and Gartner+0.47% — Gartner, up 0.47 percent as of its last quote expects more than 70% of mainframe exits begun in 2026 to miss their benefits 1. Morgan Stanley+3.61% — Morgan Stanley, up 3.61 percent as of its last quote sees a harder fourth quarter in a difficult phase of the mainframe cycle 7.
The call starts at 5 p.m 2. ET tonight 2. Watch two readings: whether the 75% net-new figure holds into the fourth quarter 3, and whether any bank turns a benchmark score into a signed exit. Until one does, the receipts still belong to IBM.
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