IBM (IBM) stock slipped late Wednesday despite the tech giant reporting third-quarter results that bested expectations. IBM also said its is seeing strong AI demand and boosted its sales forecast for the rest of the year.

The Armonk, N.Y.-based IBM said that it earned an adjusted $2.65 per share for the September-ended quarter, up 15% from a year earlier. That beat the $2.45 per share that analysts polled by FactSet were forecasting. Sales increased 9% $16.3 billion compared with analyst estimates of $16.1 billion.

"Our AI book of business now stands at more than $9.5 billion," IBM Chief Executive Arvind Krishna said in a news release. "Given the strength of our business, we are raising our full-year outlook for revenue growth and free cash flow."

One year ago, Krishna said IBM's AI book of business had reached about $3 billion.

Meanwhile, IBM now expects revenue growth of more than 5% for the full year, compared with language in its prior Q2 results projecting "revenue growth of at least 5%." Further, IBM said it expects free-cash-flow of about $14 billion for the full-year, compared with a previous forecast of $13.5 billion.

On the stock market today, IBM stock fell nearly 5% to 273.20 in after-hours trading.

IBM Software Segment Meets Views; Red Hat Growth Slows 

Analysts with Morgan Stanley pegged IBM's software segment revenue as the "single most important metric" coming into the report. Investors may have been looking for further upside. Software revenue grew 10% to $7.21 billion, according to IBM. That was roughly in line with analysts expectations, according to FactSet.

Meanwhile, IBM's hybrid cloud software offering, Red Hat, grew sales 14% year-over-year. That was a deceleration from 16% growth in Q2.

IBM's revenue beat was instead powered by its infrastructure segment, which is getting a boost from sales of IBM's new AI-focused z17 mainframe. Infrastructure sales grew 17% year-over-year to $3.56 billion, compared with estimates of $3.46 billion.

Consulting revenue also came in stronger than expected. Sales from that segment increased 3% year-over-year to $5.32 billion, compared with forecasts of $5.24 billion.

IBM Stock Up 33% This Year

Prior to earnings, IBM gained 2.2% in Wednesday regular trading. Shares have gained 33% year-to-date. In general, investors have been positive about IBM's ability to harness it expertise in AI to drive new growth, especially in its software segment. But IBM slumped in July after its Q2 results, which showed slower than expected sales growth for its software segment.

Shares broke out briefly above a 296.16 cup pattern buy point on Oct. 7 to reached a record 301.04, according to MarketSurge. That was after news that IBM will partner with Anthropic to advance the use of AI agent by businesses. The stock has pulled back since, finding support just above its 21-day moving average.

IBM — one of 30 stocks that make up the Dow Jones Industrial Average — has easily outperformed the S&P 500. But its Relative Strength rating has slipped to 71 out of a best-possible 99. The stock had a score of 85 three months ago.

Coming into the report, IBM stock had an IBD Composite Rating of 84 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.

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