IBM has lowered its revenue growth forecast for 2026. The company now expects growth of 4–5 per cent at constant exchange rates, whereas it had previously forecast growth of over 5 per cent. The decision follows a weaker second quarter, in which revenue rose by 1 per cent to $17.16 billion, but fell short of analysts’ expectations. Adjusted earnings per share stood at $2.93, also slightly below the market consensus.
The infrastructure segment proved to be the biggest drag. Its revenue fell by 7 per cent to $3.84 billion, whilst sales of IBM Z mainframe systems dropped by 42 per cent. Software continued to grow, generating $7.76 billion in revenue – 5 per cent more than a year earlier. However, this result was also weaker than forecast.
According to IBM, towards the end of the quarter, customers were shifting their investment budgets towards servers, storage and components needed to expand their AI infrastructure. Some companies accelerated their purchases due to limited hardware availability and expected price rises. As a result, several major contracts for software and mainframes were not finalised as planned.
CEO Arvind Krishna admitted that IBM had been too slow to adapt its sales efforts to changes in customer priorities. At the same time, he noted that a significant portion of the demand had been deferred rather than lost. Around a third of the delayed transactions were expected to be finalised as early as the third quarter.
The earlier release of preliminary results triggered a fall in IBM’s share price of around 25 per cent, the largest single-day drop in over a hundred years. The market fears that rapid growth in spending on AI hardware may temporarily constrain budgets allocated to traditional software and enterprise systems.
A weaker quarter does not yet signify that customers are turning away from mainframes. However, it does show that even major technology providers must react quickly to changes in investment patterns. It will now be crucial for IBM to confirm that the delayed contracts are indeed returning to its portfolio, and that software growth will maintain its pace despite pressure from spending on AI infrastructure.
