IBM lowers full-year forecast after earnings warning
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- IBM posted Q2 adjusted EPS of $2.93 on $17.16 billion in revenue, missing LSEG consensus estimates of $2.97 and $17.58 billion respectively, with revenue growing just 1% year over year.
- Management cut its 2026 revenue growth guidance to 4–5% in constant currency from the over-5% target set as recently as April, though it reiterated a $1 billion free cash flow increase and a roughly 1-percentage-point pre-tax margin expansion through productivity.
- IBM shares fell 25% in a single session after last week's earnings warning — the sharpest single-day decline on record — leaving the stock down 30% year to date against an S&P 500 up roughly 10%.
- CEO Arvind Krishna blamed the miss on worse-than-planned Z mainframe and transaction processing software sales, as customers pulled forward hardware purchases ahead of expected price increases; Z mainframe revenue cratered 42%.
- IBM's high-margin software segment grew 5% to $7.76 billion while consulting was flat at $5.33 billion and infrastructure revenue fell 7% to $3.84 billion, underscoring the hardware drag.
- IBM signed a letter of intent to build a U.S. quantum chip foundry and launched its Bob AI coding tool, already adopted by more than 80,000 employees internally.
Why it matters: IBM shareholders absorbed a record 25% single-day drop and are now down 30% YTD against an S&P 500 up 10%. The 42% Z mainframe collapse exposes the core issue — the hardware front-loading cycle has ended — and the lowered 4–5% growth ceiling signals software and consulting aren't yet large enough to offset legacy hardware declines.
