IBM cuts 2026 growth outlook after quarterly earnings miss
IBM lowered its full-year revenue growth target after second-quarter revenue and adjusted profit came in below LSEG consensus estimates.
By Theo Nakamura · Staff Writer
· 3 min read
IBM reduced its 2026 growth forecast after reporting second-quarter results that missed Wall Street expectations, giving investors a weaker target for the rest of the year. The report matters because IBM is trying to offset pressure in older hardware businesses with higher-margin software, consulting and artificial intelligence tools.
The company said Wednesday that second-quarter revenue rose 1% from a year earlier to $17.16 billion. Analysts surveyed by LSEG had expected $17.58 billion. Adjusted earnings per share, a profit measure that excludes acquisition-related adjustments, came in at $2.93, below the $2.97 expected by LSEG.
Net income was $2.17 billion, or $2.30 a share, according to IBM’s statement. That was down from $2.19 billion, or $2.36 a share, in the same period a year earlier.
Forecast comes down
IBM now expects 2026 revenue to grow 4% to 5% at constant currency. Constant currency strips out the effect of exchange-rate swings, giving investors a cleaner view of how the underlying business is growing. In April, IBM had projected more than 5% growth on that basis.
The company kept its expectation for $1 billion in additional free cash flow this year. Free cash flow is cash left after operating expenses and capital spending, and investors watch it because it can support dividends, buybacks, debt reduction or reinvestment.
IBM had already warned investors last week that second-quarter results would fall short. CEO Arvind Krishna wrote in a letter to investors that sales of Z mainframe computers and transaction processing software were weaker than planned after customers moved purchases forward ahead of expected price increases. CNBC reported that IBM shares fell 25% after that preliminary update, the stock’s sharpest one-day drop on record.
The revenue and adjusted earnings figures IBM released Wednesday matched the preliminary numbers disclosed a week earlier. Shares rose about 1% in extended trading after the full report, according to CNBC.
Software grows while mainframes slide
IBM’s software segment, which carries higher margins than some of its other businesses, generated $7.76 billion in revenue, up 5% from a year earlier. Consulting revenue was flat at $5.33 billion.
Infrastructure revenue fell 7% to $3.84 billion. Within that segment, Z mainframe revenue dropped 42%, according to IBM. That weakness is central to the company’s lowered outlook because mainframe cycles can create large swings in quarterly revenue when customers speed up or delay purchases.
IBM also highlighted several technology initiatives from the quarter. The company said it signed a letter of intent to build a U.S. quantum chip foundry. It also introduced Bob, an artificial intelligence coding tool that uses a mix of generative models and has been adopted by more than 80,000 IBM employees.
IBM said in its statement that it is using AI to improve software development, sales and marketing, and supply-chain work. The company said those efforts are intended to support margins, free cash flow and future growth opportunities.
As of Wednesday’s close, IBM shares were down 30% for 2026, while the S&P 500 was up about 10%, according to CNBC. IBM executives were scheduled to discuss the results with analysts at 5 p.m. ET.
This story draws on original reporting from CNBC.
