IBM cuts annual revenue growth forecast, days after warning of shift to AI spending
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- IBM cut its 2026 revenue growth forecast to 4-5%, down from prior expectations of more than 5%, with the midpoint trailing analysts' average estimate of US$70.77-billion in revenue (LSEG data).
- CEO Arvind Krishna said IBM had 'faltered' in adapting and that 'numerous large deals' had slipped, sending shares down 25% in one session — the steepest one-day fall in more than a century.
- IBM's Z mainframe revenue slumped 42% in Q2, dragging infrastructure revenue down 7% to US$3.84-billion; CFO James Kavanaugh said the mainframe stack hit growth by over five points versus an expected one to two.
- IBM's Q2 revenue rose 1% to US$17.16-billion, missing estimates of US$17.58-billion, with adjusted profit of US$2.93/share missing the US$2.97 consensus; net profit dipped to US$2.17-billion.
- IBM software revenue rose 5% to US$7.76-billion but missed the average analyst estimate of US$7.88-billion.
- Executives stressed customers prioritized AI spending in the quarter but were not moving off mainframes long-term; Kavanaugh said there is 'no evidence of clients moving off a mainframe' and expects 'significant outperformance' through the second half.
Why it matters: IBM attributed most of its miss to a 42% mainframe revenue collapse rather than a broad retreat from software — easing fears that the AI infrastructure spending binge is cannibalizing the wider sector, which some analysts had flagged. But with shares down 25% in a single session and the 2026 forecast midpoint trailing consensus, IBM must now prove mainframe demand is merely delayed, not structurally eroded, while it captures AI-adjacent work.
