TLDR
- IBM pre-announced Q2 results with revenue of $17.2 billion, missing Wall Street’s $17.9 billion estimate
- Adjusted EPS came in at $2.93, below the $3.01 analyst consensus
- IBM stock fell 25% on July 14 â its worst single-day drop ever â and 26% for the week
- CEO Arvind Krishna blamed customer budget shifts toward AI infrastructure and large deals failing to close on time
- Options markets are pricing in a roughly 7% move following Wednesday’s full earnings release
IBM reports full Q2 earnings after the closing bell Wednesday. Investors already know the rough numbers â the question now is what comes next.
International Business Machines Corporation, IBM
Earlier this month, IBM dropped a bombshell. The company pre-announced Q2 results, flagging that revenue and earnings would miss expectations. It was only the second time in IBM’s history it had done so â the first was during the 2008 financial crisis.
IBM reported preliminary Q2 revenue of $17.2 billion, roughly $660 million below Wall Street’s estimate of $17.9 billion. Adjusted EPS came in at $2.93, missing the $3.01 consensus.
The breakdown: infrastructure revenue fell 7% year-over-year, consulting was flat, and software grew just 5%.
The stock reacted hard. IBM fell 25% on July 14, its worst single-day decline in company history, wiping out nearly $70 billion in market cap. The full week saw a 26% drop â the worst weekly performance IBM has ever recorded.
CEO Arvind Krishna pointed to customers rapidly shifting budgets toward servers, memory, and other supply-constrained hardware ahead of anticipated price hikes.
“We did not anticipate the magnitude of the capex reprioritization,” he wrote in a letter to shareholders.
Krishna also noted that “numerous large deals” failed to close on expected timelines, which he said drove the majority of the quarterly shortfall.
What Wall Street Wants to Hear
With the numbers already previewed, Wednesday’s call is less about the figures and more about the narrative. Investors want to know if delayed Q2 deals have moved into Q3, and whether IBM can still hit its full-year targets: more than 5% constant-currency revenue growth and around $1 billion in free cash flow improvement.
Mizuho’s Dan O’Regan told Barron’s that IBM needs to show customers are still spending, the AI and software opportunity is intact, and that management has a credible recovery plan.
He believes the selloff was partly deserved given IBM’s near all-time high valuation coming into the year, but said the market may have overlooked momentum in software and AI-related businesses. “If those trends remain intact, investors may ultimately view this as an execution reset rather than a deterioration of the long-term story,” O’Regan said.
Bears Weren’t Surprised
For skeptics, the warning wasn’t a shock. BNP Paribas analyst Stefan Slowinski had long flagged valuation concerns. “Investors are overpaying for very low organic growth,” he told Barron’s, noting IBM had leaned on acquisitions to boost its overall growth profile.
Slowinski’s focus Wednesday is the bottom line. “Even if they do take down their full-year revenue guidance, can they keep their full-year cashflow guidance?” he said.
Despite the price-target cuts that followed the warning, IBM’s consensus rating on FactSet remains Overweight. Jefferies reaffirmed a Buy rating on Tuesday, cutting its price target to $260 from $320.
IBM disclosed $12.5 billion in generative AI bookings. Investors will be watching for updates on Red Hat, watsonx, and the broader AI pipeline during Wednesday’s call.
Options markets are currently pricing in a move of roughly 7% following the release.
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