Key Takeaways:
IBM shares lost 25% in a single day after preliminary Q2 results showed revenue of $17.2B, missing the $17.86B consensus by $660M.
"The cost of memory and servers and data centers and compute is skyrocketing," Michael Lee, founder of Michael Lee Strategy, said. "What you have with IBM is a temporary speed bump."
The full Q2 report, released July 22, confirmed revenue of $17.16B, up 1% from a year earlier and below the $17.58B consensus. Adjusted earnings of $2.93 per share also missed the $2.97 estimate. Software revenue rose 5% to $7.76B, while infrastructure revenue fell 7% to $3.84B, with IBM Z mainframe sales plunging 42% against the year-earlier launch of the z17. Consulting revenue was flat at $5.3B.
The sell-off erased more than $73 per share, marking IBM's largest percentage drop since at least 1968. Chief Executive Arvind Krishna said about one-third of the delayed transactions had already closed in the first weeks of July, calling the weakness "deferral and not destruction."
The company lowered its 2026 revenue growth forecast to 4 percent to 5 percent at constant currency, down from a previous outlook of more than 5 percent. It maintained its expectation to grow full-year free cash flow by about $1 billion.
Chief Financial Officer James Kavanaugh said the mainframe decline reflected purchasing cycles rather than customers abandoning the platform. Revenue from the first five quarters of the z17 cycle remains nearly 30 percent ahead of the comparable z16 period, he said.
Bola Rotibi, chief of enterprise research at CCS Insight, said the 25 percent stock decline felt excessive. "This isn't a bad business," Rotibi said. "The MIPS are growing, there's high utilization and strong security."
The decline puts IBM shares at their lowest since early 2025, testing support near $200. Investors will watch the Q3 earnings call in October for evidence that the delayed mainframe and software deals have closed as management expects.
This article is for informational purposes only and does not constitute investment advice.
