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IBM Cuts Revenue Outlook Following Historic Stock Drop
Updated July 22, 2026, 4:18 pm EDT / Original July 22, 2026, 3:00 am EDT
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About This Summary
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IBM posts second-quarter results after warning that its revenue and adjusted earnings would fall short of estimates.
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IBM posted quarterly revenue of $17.2 billion, as customers shifted budgets and numerous large deals failed to close on time.
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Following the warning, IBM shares fell 26% last week, marking the worst weekly performance in the company’s history.
After last week’s earnings warning sent IBM’s stock into a downward spiral, it may seem like the fate of its shares is sealed. Yet that may not be the case.
Investors already had an idea of what the numbers would look like. IBM previewed its second-quarter earnings last week—a rare move for a company that had only pre-announced earnings once before in its history, during the 2008 financial crisis.
IBM cautioned that key metrics, which were released after Wednesday’s closing bell, would fall short of expectations. The company posted roughly $17.2 billion in revenue for the quarter, driven by a 7% year-over-year drop in infrastructure, flat consulting sales, and a 5% uptick in software. Wall Street was looking for $17.5 billion. Adjusted earnings came in at $2.93 a share, behind the $2.95 analysts were expecting.
Notably, the company updated its full-year revenue outlook, guiding for constant-currency growth in the range of 4% to 5%. Earlier this year, the company projected more than 5% growth.
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Last week, CEO Arvind Krishna issued commentary around artificial-intelligence spending, saying that some customers suddenly shifted their budgets toward servers, memory, and other “supply-constrained infrastructure” to get ahead of expected price hikes.
“This dynamic impacted client buying patterns,” Krishna explained in a letter to shareholders. “While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.”
Shares plunged 25% on July 14, marking their worst one-day decline ever and wiping out nearly $70 billion in market value. The stock fell 26% last week—the worst weekly performance in the company’s history.
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Now, investors are questioning whether the company is facing execution issues in the face of unexpected changes, or if there are signs of a broader shift in customer behavior that IBM must adapt to. Krishna wrote that “numerous large deals” failed to close on the timelines IBM had expected, “driving the majority of our shortfall.”
The real proof won’t be in the numbers—investors already had an idea of what those would be. Rather, they’re looking for signs of future execution and commentary regarding the steps IBM is taking to recover from the quarter’s missteps.
“IBM has to show customers are still spending, the AI and software opportunity remains intact, and that management has a credible plan to get growth back on track,” Mizuho’s Dan O’Regan told Barron’s ahead of the report.
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Given that IBM had been trading earlier this year near all-time highs, the selloff was partly warranted, O’Regan said. Even so, he believes the market was overlooking momentum in “several of IBM’s strategic businesses,” particularly software and AI-related offerings.
“If those trends remain intact, investors may ultimately view this as an execution reset rather than a deterioration of the long-term story,” O’Regan explained.
Although the earnings warning triggered a wave of price-target cuts, most firms aren’t changing their tune on IBM stock. The consensus rating on FactSet remains Overweight. On Tuesday, Jefferies analysts reaffirmed their Buy rating on the shares, even as they lowered their price target to $260 from $320.
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For Wall Street bears, the pre-announcement validated long-held doubts rather than offering a fresh perspective. BNP Paribas analyst Stefan Slowinski has long argued that the stock was trading at an unwarranted premium to the broader market.
“We’ve been concerned about valuation,” Slowinski told Barron’s. “Investors are overpaying for very low organic growth.” To counter that drag, he said, IBM has relied on buying faster-growing software firms to artificially lift its overall profile.
“Cashflow is always important for IBM,” Slowinski continued. “It’s never good if you miss on the top line and you’re not growing, but you should protect the bottom line. Even if they do take down their full-year revenue guidance, can they keep their full-year cashflow guidance?”
IBM said Wednesday that it expect full-year free cash flow to increase by about $1 billion year-over-year, reiterating prior guidance.
From Slowinski’s perspective, second-quarter earnings are a crucial test for IBM. “If they can pull some levers, that gives investors confidence that, even if the market changes and they miss on revenue, they typically now know how to adapt their business,” he said. “We’re looking for anything they can do or say to show they’re protecting the bottom line, they’re protecting earnings, they’re protecting cashflow.”
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Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.comExternal link
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