CNBC5 hours agoBusiness2 min read

IBM Lowers 2026 Forecast and Reports Weaker Q2 Earnings

Quick Look

IBM reported weaker Q2 earnings and lowered its 2026 revenue growth forecast to 4-5% from over 5%, despite an earlier warning.
The company aims for higher productivity and free cash flow, but Z mainframe sales underperformed, causing a record stock drop.

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Why It Matters

IBM had issued an earnings warning last week, leading analysts to cut their estimates before the official Q2 results were disclosed.

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IBM lowered its 2026 forecast and delivered weaker earnings than analysts had projected on Wednesday, even after the company issued an earnings warning last week. IBM said it aims to widen its full-year pre-tax margin by about 1 percentage point through higher productivity.

Here's how the company did relative to LSEG consensus:

Earnings per share: $2.93 adjusted vs. $2.97 expected

Revenue: $17.16 billion vs. $17.58 billion expected

IBM's revenue grew 1% year over year in the quarter, according to a statement. Net income of $2.17 billion, or $2.30 per share, decreased from $2.19 billion, or $2.36 per share, a year ago. Adjusted earnings exclude acquisition-related adjustments.

Management called for 4% to 5% revenue growth in constant currency for 2026. As recently as April, IBM had been looking for over 5% growth at constant currency. The company reiterated expectations for $1 billion in higher free cash flow for the year.

Analysts cut their estimates after IBM announced preliminary second-quarter results. In a letter to investors, CEO Arvind Krishna cited worse-than-planned performance in sales of Z mainframe computers and transaction processing software as organizations rushed to buy hardware ahead of expected price increases. The stock dropped 25%, marking its sharpest single-day decline on record.

The revenue and adjusted earnings per share figures IBM disclosed on Wednesday were in line with the figures released a week ago.

As of Wednesday's close, IBM shares were down 30% so far in 2026, while the S&P 500 index was up about 10%.

IBM said its high-margin software segment produced $7.76 billion in second-quarter revenue, up 5%. Consulting revenue, at $5.33 billion, was flat. Revenue from infrastructure, at $3.84 billion, declined 7%, with Z mainframe revenue falling 42%.

During the quarter, IBM said it signed a letter of intent to build a U.S. quantum chip foundry. It also introduced the Bob artificial intelligence coding tool that relies on a mixture of generative models, with adoption from over 80,000 employees.

"IBM is accelerating productivity by scaling software development leveraging AI, increasing the effectiveness of its sales and marketing organization, and optimizing its supply chain, the company said in Wednesday's statement. "These efforts help enhance margin and free cash flow, and strengthen the company's ability to capture significant growth opportunities."