TLDR
- IBM cut its 2026 revenue growth forecast to 4%–5%, down from its prior outlook of more than 5%
- Z mainframe revenue dropped 42% in Q2, dragging infrastructure revenue down 7%
- Q2 revenue came in at $17.16 billion, missing the $17.58 billion estimate
- Adjusted EPS of $2.93 missed the $2.97 estimate
- CEO Arvind Krishna blamed “large capex deals” at big clients slipping, saying demand is “deferred, not destroyed”
IBM cut its annual revenue growth forecast Wednesday after reporting a second-quarter miss across the board, as corporate customers pulled back on software spending to fund AI infrastructure buildouts.
IBM stock traded up around 2% following the earnings release, then pulled back. The stock had already fallen 25% on July 14 after the company issued a profit warning — its steepest single-day drop in more than a century.
International Business Machines Corporation, IBM
Q2 revenue came in at $17.16 billion, up just 1% year over year but below the $17.58 billion Wall Street had expected. Adjusted earnings per share of $2.93 also missed the consensus estimate of $2.97.
IBM now sees full-year 2026 revenue growth of 4% to 5%, stepping back from its prior guidance of “more than 5%.” The midpoint sits below the average analyst estimate of 4.8% growth.
CEO Arvind Krishna opened the earnings call by acknowledging the stumble head-on. “It comes down to execution. That is where we fell short in the second quarter,” he said. “A lot of the demand is deferred, not destroyed.”
Krishna said the bulk of what went wrong came down to “large capex deals at large clients” that didn’t close in Q2. He added that roughly one-third of those deals have since closed in the current third quarter.
Mainframe Revenue Takes the Biggest Hit
Z mainframe revenue fell 42% in Q2, a steeper drop than the company had anticipated. CFO Jim Kavanaugh said IBM had expected only “a point or two” of impact from the mainframe cycle but instead saw more than five points of drag on overall growth.
Kavanaugh was clear that clients are not abandoning mainframes. “We see no evidence of clients moving off a mainframe,” he said, adding that IBM expects the segment to improve in the second half.
Infrastructure revenue overall fell 7% to $3.84 billion. Consulting revenue was flat.
Software revenue grew 5% to $7.76 billion, though that missed the $7.88 billion estimate and slowed sharply from 11% growth in Q1.
Cost Cuts and the Breakup Question
Kavanaugh said IBM is raising its cost-savings target above $5.5 billion in annual run-rate savings by year-end — up from a prior $5.5 billion goal. He said this helped IBM grow operating profit 5% and expand margins 30 basis points even on 1% revenue growth.
On speculation about a potential breakup, Kavanaugh pushed back. “We remain confident IBM is strongest as an integrated company,” he said.
CFRA analyst Brooks Idlet offered a measured read: “For the broader software sector, this should be treated as a positive print, with IBM’s software woes more likely to reflect specific IBM-related hardware issues.”
Inventory at IBM rose $600 million year over year, with Kavanaugh saying he proactively bought server storage parts to get ahead of price increases from hardware suppliers.
Wall Street has cut its EPS estimates for both 2026 and 2027 since the July 14 warning. Thomas Martin of Globalt Investments put it plainly: “It’s going to be in the penalty box for a while.”
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