IBM plunges 25% in record drop as Q2 revenue misses by $660M

IBM reported preliminary second-quarter revenue of $17.2 billion, up 1% from a year earlier and missing the $17.86 billion consensus, sending shares down 25.2% in their largest single-day drop since at least 1968.

"The shortfall was driven by a failure to close several large software transactions in the final weeks of June," Chief Executive Officer Arvind Krishna said in a letter to shareholders. "We did not anticipate the magnitude of the capex reprioritization toward AI infrastructure."

Adjusted earnings per share came in at $2.93, up 4.6% year over year but below the $3.02 analyst estimate. The company had guided for 5% constant-currency revenue growth in the second quarter, a target it missed by a wide margin. Software revenue grew 5%, a sharp deceleration from 11% in the first quarter and from double-digit growth in the prior two periods. Consulting was flat, and infrastructure fell 7%, reversing a 15% gain in Q1.

The sell-off erased about $67 billion in market value, with shares falling from $290.23 to $217.07 — the largest dollar decline in the company's history. Before the drop, IBM had returned 139% over three years, nearly double the S&P 500's 73% gain. The company maintained its quarterly dividend, now yielding about 3.18%, and has increased payouts for 31 consecutive years. Free cash flow reached $4.8 billion in the quarter, compared with $14.7 billion for full-year 2025.

Krishna attributed the miss to enterprise customers unexpectedly redirecting technology budgets toward AI hardware — servers, storage, and memory — in the final weeks of June, as supply constraints drove expectations of price increases. IBM's mainframe Z business and its associated transaction processing software were hit hardest. Red Hat revenue grew 11% sequentially, and distributed infrastructure rose 37% with a roughly $500 million backlog, suggesting pockets of strength beneath the headline weakness.

The preliminary results raise questions about whether the second-quarter weakness was a temporary shift or the start of a broader slowdown. Management will release full results on July 22, when investors will learn whether the delayed deals were pushed back or canceled entirely. Of the 22 analysts covering IBM, 10 rate it a Strong Buy, two a Moderate Buy, nine have a Hold, and one says Strong Sell, with an average price target of $293.95 implying 39% upside from current levels.

This article is for informational purposes only and does not constitute investment advice.