IBM stock plunged 23% in premarket trading on July 14 after the tech giant issued a preliminary earnings warning for the second quarter, citing a sharp shift in customer spending toward AI infrastructure that caught the company off guard.
The company reported Q2 revenue of $17.2 billion, up just 1% year-over-year but below analyst expectations of $17.8 billion. Non-GAAP earnings per share came in at $2.93, below the $3.00 consensus estimate.
CEO Arvind Krishna attributed the shortfall to customers redirecting capital spending toward servers, storage, and memory to secure supply-constrained AI infrastructure ahead of expected price increases. “These conditions require our teams to execute perfectly, and this quarter we faltered,” Krishna said. “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”
Infrastructure revenue, IBM’s legacy business anchored by mainframe systems, fell 7% during the quarter—worse than the “low single-digit” decline the company had anticipated. The weakness extended to the Z systems line, including the z17 mainframe, which had been a bright spot in earlier quarters when the company reported a 51% surge in Z hardware revenue in Q1 2026.
Software revenue, which IBM has been building through acquisitions like Red Hat, Confluent, and HashiCorp as part of a broader transformation away from hardware, rose 5%—modest growth that underscored the company’s struggle to pivot quickly enough to capitalize on the AI boom.
Krishna also cited secondary headwinds: customers had been “distracted” by “rapidly evolving, industry-wide cyber security concerns,” which further delayed purchasing decisions. The warning exposes a central challenge IBM faces as it attempts to reinvent itself as a software and services company in an era when enterprise budgets are flooding toward AI infrastructure.
IBM had spent tens of billions acquiring software assets to compete in faster-growing markets, but the current AI investment cycle is pulling capital away from traditional software spending. The company will hold its formal earnings call on July 22, 2026.
Sources
- Financial Times — IBM shares plunging 23%, CEO Krishna’s full statement on company “faltering,” customer spending shift to AI infrastructure, and z17 weakness
- Yahoo Finance — Q2 revenue $17.2B, EPS $2.93 vs $3.00 expected, premarket drop confirmation
- Seeking Alpha — Infrastructure revenue decline, preliminary results miss, CEO statement on large deals failing to close
- Stock Titan / Arvind Krishna Letter — Infrastructure and software segment breakdown, z17 and Transaction Processing shortfalls
- Quartz — Customer capital spending shift toward hardware, CEO attribution
- Channel News Asia — Industry-wide shift in technology spending toward AI infrastructure reducing traditional software budgets
