Growth From 12.6% to 12.9%, Through a DipNarrow moat

IBM (IBM) — moat facet

Red Hat grows in the low teens year after year, which is a durable subscription business rather than a conquest.

Red Hat's growth has been steadier than IBM's, but slower than the price assumed. IBM reported Red Hat revenue up 12.6% in 20221 and 9.1% in 20232. On the recast category now called Hybrid Cloud, growth was 11.4% in 2024 and 12.9% in 20253. It was 11.2% in the second quarter of 20264.

Red Hat revenue growth (%)12.6%20229.1%202311.4%202412.9%202511.2%Q2 2026IBM Annual Reports 2022, 2023, 2025; Form 10-Q Q2 2026
Low teens, with one dip.

The 2023 dip is the one to remember. IBM described that year as led by "double-digit growth in OpenShift and Ansible, and solid growth in RHEL"5, yet the total came in at 9.1%. When the consumption-based services slowed, the whole line did; the second-quarter 2026 report still speaks of "stabilization in consumption-based services"6.

Low-teens growth on a subscription base is a good business. It is a recurring stream that customers renew, and Red Hat's revenue added about $1.5 billion between 2023 and 20257. It is not the growth of a franchise that is taking over its market; it is the growth of one that is holding its place in a larger one.

The steadiness is the moat. Customers who build on Red Hat Enterprise Linux and OpenShift rarely move off them mid-cycle.

The currency-adjusted figures tell the same story with less noise. Hybrid Cloud grew 12.0% at constant currency in 2024 and 11.7% in 20258, and 10.9% in the second quarter of 20269. The line is growing at almost exactly the same pace year after year, which is what a mature subscription base with steady renewals and modest new sales looks like.

The line to watch is the annual growth rate. A return to 9% or below would say the 2023 slowdown was the trend and the recovery the exception.

Moat trajectory: Holding steady

12.9% in 2025; 11.2% in Q2 2026.

The number that tests this moat
Reported
Hybrid Cloud revenue growth, full year
+12.9% (FY2025), from +9.1% in 2023

Red Hat's pace; a return to 9% or lower would mean the 2023 slowdown was the trend.

Source: IBM 2025 Annual Report ↗
⚠ Threats to the moat
⚠ THREAT 01
Low Teens Is Not Enough for the Price
Red Hat's steady low-teens growth keeps it healthy but cannot, alone, make IBM a growth company or its price a bargain.
References
  1. ReportedIBM reported Red Hat revenue up 12.6% in 2022 and 9.1% in 2023.
    IBM 2022 Annual Report (Form 10-K exhibit 13) - zSystems growth, incremental sales to Kyndryl, disposal of the retained Kyndryl stake, Red Hat growth, 2021-2022 segment revenue. — FY2022 · publ. February 2023 · source ↗
  2. ReportedIBM reported Red Hat revenue up 12.6% in 2022 and 9.1% in 2023.
    IBM 2023 Annual Report (Form 10-K exhibit) - Apptio purchase price, 2022-2023 segment pre-tax income, Red Hat growth, total debt. — FY2023 · publ. February 2024 · source ↗
  3. ReportedOn the recast category now called Hybrid Cloud, growth was 11.4% in 2024 and 12.9% in 2025.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - management discussion of the Software segment: Hybrid Cloud, Automation, Data, Transaction Processing and ARR. — FY2025 · publ. 24 February 2026 · source ↗
  4. ReportedIt was 11.2% in the second quarter of 2026.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - income statement, segment table, RPO, pensions and working capital. — Q2 2026 · publ. 23 July 2026 · source ↗
  5. ReportedIBM described that year as led by "double-digit growth in OpenShift and Ansible, and solid growth in RHEL", yet the total came in at 9.1%.
    IBM 2023 Annual Report (Form 10-K exhibit) - Apptio purchase price, 2022-2023 segment pre-tax income, Red Hat growth, total debt. — FY2023 · publ. February 2024 · source ↗
  6. ReportedWhen the consumption-based services slowed, the whole line did; the second-quarter 2026 report still speaks of "stabilization in consumption-based services".
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - income statement, segment table, RPO, pensions and working capital. — Q2 2026 · publ. 23 July 2026 · source ↗
  7. Moat Explorer calcIt is a recurring stream that customers renew, and Red Hat's revenue added about $1.5 billion between 2023 and 2025.
    Moat Explorer calculation from IBM's reported figures ($ millions unless stated). Segment mix 2025: Software 29,962 / 67,472 = 44.4% of segment revenue and 9,920 / 16,364 = 60.6% of segment profit; Consulting 21,055 / 67,472 = 31.2% and 2,464 / 16,364 = 15.1%; Infrastructure 15,718 / 67,472 = 23.3% and 3,458 / 16,364 = 21.1%; Financing 737 / 67,472 = 1.1% and 521 / 16,364 = 3.2%. Segment revenue below reported revenue: 60,530 - 59,621 = 909 (2022); 61,860 - 61,229 = 631 (2023); 62,753 - 62,510 = 243 (2024); 67,535 - 67,472 = 63 (2025). Growth: revenue 67,535 / 62,753 - 1 = 7.6% (2025); 62,753 / 61,860 - 1 = 1.4% (2024); Q2 2026 17,162 / 16,977 - 1 = 1.1%; Software 25,011 / 23,629 - 1 = 5.8%, 27,085 / 25,011 - 1 = 8.3%, 29,962 / 27,085 - 1 = 10.6%; Software Q2 2026 7,761 / 7,387 - 1 = 5.1%; Consulting 20,884 / 20,058 - 1 = 4.1%, 20,692 / 20,884 - 1 = -0.9%, 21,055 / 20,692 - 1 = 1.8%, 21,055 / 20,058 - 1 = 5.0% over three years, Q2 2026 5,327 / 5,314 - 1 = 0.2%; Infrastructure 14,593 / 15,288 - 1 = -4.5%, 14,020 / 14,593 - 1 = -3.9%, 15,718 / 14,020 - 1 = 12.1%, Q2 2026 3,835 / 4,142 - 1 = -7.4%; Financing 737 / 713 - 1 = 3.4%, Q2 2026 186 / 166 - 1 = 12.0%; Transaction Processing 8,603 / 7,714 - 1 = 11.5% and 8,603 - 7,714 = 889 added 2023-2025; Hybrid Cloud 7,327 - 5,827 = 1,500 added 2023-2025; 11% to 13% of 7,327 = 806 to 952 a year; OpenShift 30% x 2.0bn = 0.6bn a year; Infrastructure Support 5,100 / 6,021 - 1 = -15.3% (2021-2025) and 4,800 / 5,100 - 1 = -5.9%; research and development 8,316 / 7,479 - 1 = 11.2%; Software segment profit 9,920 / 7,012 - 1 = 41.5%; Consulting segment profit 2,464 / 1,871 - 1 = 31.7%; financing receivables 15,193 / 11,738 - 1 = 29.4%; total debt 62.0bn - 50.9bn = 11.1bn since 2022. Shares: mainframe-linked revenue 10,618 + 8,603 + 5,100 = 24,321, and 24,321 / 67,535 = 36.0%; Hybrid Cloud 7,327 / 29,962 = 24.5% of Software; OpenShift 2.0 / 24.6 = 8.1% of software ARR; June 2026 ARR 24.6bn / 2025 Software revenue 29.962bn = 82.1%; revenue outside the United States 40,643 / 67,535 = 60.2%, so about 60%; research and development 8,316 / 67,535 = 12.3% of revenue; quantum more than 10bn / 5 years = more than 2bn a year, and 2.0 / 8.316 = 24%, about a quarter; goodwill 67,717 / 151,880 = 44.6% of total assets; goodwill plus intangibles (67,717 + 11,391) / 151,880 = 52.1%; other assets 151,880 - 67,717 - 11,391 = 72,772; HashiCorp goodwill 4,684 / 7,433 = 63.0%; Confluent goodwill 7,238 / 11,602 = 62.4%, other net assets 11,602 - 7,238 = 4,364; stock-based compensation 1,685 / 16,364 = 10.3% of segment profit; Kyndryl spin 55,179 / 73,620 - 1 = -25.0% of 2020 revenue, about a quarter. Margins: Software Q2 2025 2,296 / 7,387 = 31.1%; Consulting Q2 2025 562 / 5,314 = 10.6%; Infrastructure Q2 2026 835 / 3,835 = 21.8% and Q2 2025 965 / 4,142 = 23.3%; total segment profit Q2 2026 4,092 / 17,110 = 23.9% and Q2 2025 4,003 / 17,009 = 23.5%; Financing Q2 2026 108 / 186 = 58% (reported 58.0%); pre-tax margin 10,328 / 67,535 = 15.3%; Global Technology Services 2020 117 / 27,039 = 0.4%; gross margin Q2 2026 9,907 / 17,162 = 57.7% and Q2 2025 9,977 / 16,977 = 58.8%. Red Hat: 7,327 / 35,100 = 20.9% of consideration; pre-tax at the Software margin 0.331 x 7,327 = 2,425, and 2,425 / 35,100 = 6.9%, about 7%; after a 21% tax 6.9% x 0.79 = 5.5%; revenue needed for 8% after tax 0.08 x 35,100 / (0.331 x 0.79) = 10,738, about 10.7bn, which is 10,738 / 7,327 = 1.47 times 2025 revenue: about 3.2 years at 12.5% growth, 4.4 years at 9% and 7.8 years at 5%. Cash and capital: acquisitions plus dividends 2025 8,294 + 6,255 = 14,549, and 14,549 / 14,734 = 98.7% of free cash flow; first half 2026 acquisitions 10.5bn / free cash flow 4.8bn = 2.2 times; dividends 6,255 / 10,593 = 59.0% of net income; Consulting backlog 31.9bn / 21.055bn = 1.5 years of revenue; remaining performance obligations 71bn - 68bn = 3bn lower in six months; pension risk transfers 16 + 6 + 1.2 = 23.2bn; defined-benefit obligations 14,460 + 29,872 = 44,332 against plan assets 18,073 + 26,733 = 44,806; free cash flow guidance 14.7bn + 1.0bn = 15.7bn. Further: revenue per employee 67,535 / 264.3 thousand = about 255,500 dollars; Q2 2026 Software share of segment profit 2,502 / 4,092 = 61.1%; first-half Software 14,813 / 13,722 - 1 = 8.0%; amortisation of acquired intangibles 2,166 / 1,627 - 1 = 33.1%; free cash flow 14.7 / 6.5 = 2.3 times (2021-2025); Q2 2026 Transaction Processing 2,208 - 2,030 = 178 lower, Data 1,782 - 1,499 = 283 higher, Hybrid Cloud 1,998 - 1,796 = 202 higher, Transaction Processing above Hybrid Cloud by 2,030 - 1,998 = 32; share price 225.51 / 332.46 - 1 = -32.2% from the 52-week high; first half 2026 Hybrid Cloud 3,903 / 3,483 - 1 = 12.1%, Transaction Processing 3,963 / 4,037 - 1 = -1.8%, Hybrid Infrastructure 4,678 / 4,512 - 1 = 3.7%, Infrastructure Support 2,483 / 2,515 - 1 = -1.3%, Automation 3,692 / 3,467 - 1 = 6.5%, Data 3,256 / 2,736 - 1 = 19.0%, Financing 406 / 357 - 1 = 13.7%, Strategy and Technology 5,829 / 5,702 - 1 = 2.2%, Intelligent Operations 4,770 / 4,680 - 1 = 1.9%; Strategy and Technology Q2 2026 2,933 / 2,920 - 1 = 0.4%; Infrastructure Support 2021 share 6,021 / 14,188 = 42.4%; Infrastructure 2020 pre-tax margin 1,654 / 14,533 = 11.4%; Consulting 2020 pre-tax margin 1,034 / 16,257 = 6.4%; buybacks 2015-2019 4,609 + 3,502 + 4,340 + 4,443 + 1,361 = 18,255; Hybrid Cloud 7,327 / 67,535 = 10.8% of revenue, about a tenth; acquisitions 2023 to June 2026 5.1 + 3.3 + 8.3 + 10.5 = 27.2bn; HashiCorp net of acquired cash and securities 7,433 - 929 - 331 = 6,173; ARR 24.6 - 21.3 = 3.3bn from end-2024 to June 2026; net interest excluding Financing 1,312 / 984 - 1 = 33.3%; 2024 signings 25,103 / 20,692 = 1.21, about 21% above revenue; generative AI book 12.5 - 9.5 = 3.0bn added in Q4 2025; EMEA growth gap 14.2 - 9.0 = 5.2 points; revenue 57,350 / 73,620 - 1 = -22.1% from 2020 as filed to 2021. Trailing twelve months to June 2026: revenue 67,535 - 31,519 + 33,079 = 69,095; net income 10,593 - 3,249 + 3,381 = 10,725; P/E 212,460 / 10,725 = 19.8; P/S 212,460 / 69,095 = 3.07 - growth rates and line totals. — FY2015-Q2 2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in IBM's Annual Reports, Forms 10-Q, results releases and market data; operands shown in the source line.
  8. ReportedHybrid Cloud grew 12.0% at constant currency in 2024 and 11.7% in 2025, and 10.9% in the second quarter of 2026.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - management discussion of the Software segment: Hybrid Cloud, Automation, Data, Transaction Processing and ARR. — FY2025 · publ. 24 February 2026 · source ↗
  9. ReportedHybrid Cloud grew 12.0% at constant currency in 2024 and 11.7% in 2025, and 10.9% in the second quarter of 2026.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Software segment results and revenue categories. — Q2 2026 · publ. 23 July 2026 · source ↗
Sources
Generated September 28, 2026