IBM lowered its 2026 revenue growth forecast and reported quarterly profits below analyst expectations, following an earnings warning issued the previous week [1]. For the quarter, IBM posted adjusted earnings per share of $2.93, missing the $2.97 expected by analysts, and revenue of $17.16 billion, which also fell short of the $17.58 billion consensus estimate from LSEG [1]. Revenue grew 1% year over year, while net income declined to $2.17 billion, or $2.30 per share, from $2.19 billion, or $2.36 per share, a year earlier [1].
The company now projects 4% to 5% constant-currency revenue growth for 2026, down from its previous guidance of over 5% as of April [1]. IBM reiterated its expectation for $1 billion in higher free cash flow for the year [1]. The downward revision in guidance and disappointing results were attributed by CEO Arvind Krishna to worse-than-expected sales of Z mainframe computers and transaction processing software, as organizations accelerated hardware purchases ahead of anticipated price hikes [1]. This led to a 25% single-day drop in IBM's stock, the sharpest on record, and shares have fallen 30% year-to-date, compared to a 10% gain in the S&P 500 index [1].
Segment results showed IBM's high-margin software division generated $7.76 billion in second-quarter revenue, up 5%, while consulting revenue was flat at $5.33 billion. Infrastructure revenue declined 7% to $3.84 billion, with Z mainframe revenue plunging 42% [1]. Despite the challenges, IBM highlighted strategic initiatives during the quarter, including signing a letter of intent to build a U.S. quantum chip foundry and launching the Bob AI coding tool, which has seen adoption by over 80,000 employees [1]. The company emphasized ongoing efforts to enhance productivity and margins through AI-driven software development, sales and marketing optimization, and supply chain improvements [1].
Analysts reduced their estimates after IBM's rare move of releasing preliminary second-quarter results, and executives planned to discuss the results further in a conference call with analysts [1].
CONCLUSION
IBM's lowered outlook and disappointing quarterly results, driven by a sharp decline in mainframe sales, have led to significant stock underperformance relative to the broader market. While the company is pursuing strategic initiatives in AI and quantum computing, investor sentiment remains negative amid reduced growth expectations.