IBM Cuts Guidance After Q2 Revenue Miss
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- IBM posted Q2 revenue of $17.2 billion against expectations of $17.5 billion, with adjusted earnings of $2.93 per share missing the $2.95 estimate, driven by a 7% year-over-year drop in infrastructure and flat consulting sales offset partially by 5% software growth.
- Arvind Krishna told shareholders that customers suddenly reprioritized capital expenditure toward 'supply-constrained infrastructure' like servers and memory to get ahead of expected price hikes, a dynamic IBM 'did not anticipate the magnitude of,' while numerous large deals failed to close on time.
- IBM cut its full-year constant-currency revenue growth outlook to 4%-5%, down from a prior projection of 'more than 5%,' though it reiterated free cash flow guidance for roughly $1 billion in year-over-year growth.
- IBM shares plunged 25% on July 14 — the worst single-day decline in company history — and finished the week down 26%, erasing nearly $70 billion in market value after the rare pre-announcement.
- Mizuho's Dan O'Regan framed the quarter as an 'execution reset rather than a deterioration of the long-term story,' arguing software and AI momentum may be overlooked by the market.
- BNP Paribas' Stefan Slowinski, a long-time bear, said investors have been 'overpaying for very low organic growth' and that the quarter's key test is whether IBM can 'protect the bottom line' and cash flow even with weaker revenue.
- Jefferies reaffirmed its Buy rating on IBM but lowered its price target to $260 from $320, while FactSet's consensus rating on the stock remained Overweight.
Why it matters: The $70 billion market-cap wipeout reflects a market pricing in not just a one-quarter miss but a structural concern: enterprise IT budgets are visibly rotating from legacy infrastructure and consulting toward AI-adjacent hardware, and IBM's growth profile depends on convincing investors its software and AI businesses can offset that rotation. Free cash flow guidance being held steady is IBM's primary defense, but the guide-down on revenue growth — the second pre-announcement in IBM's history, the first since 2008 — sets the bar for whether the company can stabilize the narrative before clients permanently reallocate spend.
