The Investor
14 Jul 2026, 17:51
IBM Stock Plunges 25% After Preliminary Results Reveal Infrastructure Weakness
IBM (NYSE: IBM) shares tumbled roughly 25% in Tuesday trading after the company released preliminary second-quarter results that fell short of investor expectations, citing weaker-than-expected mainframe performance and delayed customer spending.
IBM reported second-quarter revenue of $17.2 billion, up 1% year over year. Software revenue increased 5%, while Consulting revenue was flat, or up 1% in constant currency. However, Infrastructure revenue declined 7%, significantly weighing on overall results.
Management attributed the weakness primarily to disappointing IBM Z mainframe sales and the associated transaction processing software business. CEO Arvind Krishna said many customers redirected capital spending toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. The company also cited rapidly evolving cybersecurity concerns that delayed several large customer deals during the final weeks of June.
Profitability also weakened during the quarter. Gross margin declined to 57.7% from 58.8% a year earlier, while GAAP diluted EPS fell 2% to $2.27. Despite the disappointing quarter, operating (non-GAAP) EPS increased 5% to $2.93, and IBM generated $4.8 billion in free cash flow during the first six months of 2026.
Management emphasized that several parts of the business continued to perform well. Red Hat revenue accelerated to 11% growth, recent acquisitions including HashiCorp and Confluent delivered strong results, and Distributed Infrastructure revenue surged 37%. IBM also highlighted its recently announced Lightwell AI platform and ongoing investments in quantum computing as key long-term growth drivers.
Nevertheless, investors focused on the weaker Infrastructure performance and management's admission that several large deals failed to close as expected. The preliminary results raised concerns about IBM's near-term execution and growth outlook, triggering one of the stock's sharpest single-day declines in recent years. Investors will look for additional details when IBM reports its full second-quarter results and updates its full-year guidance on July 22.
IBM (NYSE: IBM) shares tumbled roughly 25% in Tuesday trading after the company released preliminary second-quarter results that fell short of investor expectations, citing weaker-than-expected mainframe performance and delayed customer spending.
IBM reported second-quarter revenue of $17.2 billion, up 1% year over year. Software revenue increased 5%, while Consulting revenue was flat, or up 1% in constant currency. However, Infrastructure revenue declined 7%, significantly weighing on overall results.
Management attributed the weakness primarily to disappointing IBM Z mainframe sales and the associated transaction processing software business. CEO Arvind Krishna said many customers redirected capital spending toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. The company also cited rapidly evolving cybersecurity concerns that delayed several large customer deals during the final weeks of June.
Profitability also weakened during the quarter. Gross margin declined to 57.7% from 58.8% a year earlier, while GAAP diluted EPS fell 2% to $2.27. Despite the disappointing quarter, operating (non-GAAP) EPS increased 5% to $2.93, and IBM generated $4.8 billion in free cash flow during the first six months of 2026.
Management emphasized that several parts of the business continued to perform well. Red Hat revenue accelerated to 11% growth, recent acquisitions including HashiCorp and Confluent delivered strong results, and Distributed Infrastructure revenue surged 37%. IBM also highlighted its recently announced Lightwell AI platform and ongoing investments in quantum computing as key long-term growth drivers.
Nevertheless, investors focused on the weaker Infrastructure performance and management's admission that several large deals failed to close as expected. The preliminary results raised concerns about IBM's near-term execution and growth outlook, triggering one of the stock's sharpest single-day declines in recent years. Investors will look for additional details when IBM reports its full second-quarter results and updates its full-year guidance on July 22.