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International Business Machines (IBM) Is Down 29.1% After Warning On Q2 Weakness Amid AI Spend Shift

Simply Wall St · 2d ago
  • In early July 2026, IBM issued rare preliminary second‑quarter results showing weaker software and infrastructure performance as enterprise customers redirected budgets toward AI-focused servers, storage, and memory, while also rolling out new offerings such as the Lightwell open‑source security platform, expanded IBM Bob development tools, and updated z17 and LinuxONE 5 systems.
  • The company’s explanation that it “did not adapt and move quickly enough” to this sudden capital‑expenditure reprioritization raises pointed questions about how resilient its hybrid cloud, AI, and mainframe‑modernization roadmap really is when client priorities shift abruptly.
  • We’ll now examine how this abrupt client shift toward AI infrastructure, and IBM’s admitted execution missteps, affect the company’s investment narrative.

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International Business Machines Investment Narrative Recap

To own IBM today, you have to believe that its hybrid cloud, AI and mainframe modernization strategy can still compound value even when client priorities swing abruptly toward AI hardware. The immediate catalyst has flipped: execution in Software and Infrastructure, especially around z17 and related offerings, now matters more than broad macro trends. The biggest near term risk is that delayed deals and budget shifts prove stickier than IBM suggests, keeping higher margin software recovery uneven.

Among IBM’s recent moves, the expansion of its z17 and LinuxONE 5 portfolio is most relevant to this setback. New rack mount and single frame systems, coupled with tools like Infrastructure Management for Z and COBOL Elevate, go straight at the mainframe and infrastructure weakness IBM just flagged. How effectively these configurations translate existing mainframe footprints into AI ready, more flexible deployments could heavily influence whether Infrastructure returns to being a support for the investment case or remains a drag.

Yet beneath the product launches, investors should be aware that the real concern is whether IBM can avoid a repeat of this kind of sudden budget shock...

Read the full narrative on International Business Machines (it's free!)

International Business Machines' narrative projects $79.6 billion revenue and $12.7 billion earnings by 2029. This requires 4.9% yearly revenue growth and about a $2.0 billion earnings increase from $10.7 billion today.

Uncover how International Business Machines' forecasts yield a $293.89 fair value, a 35% upside to its current price.

Exploring Other Perspectives

IBM 1-Year Stock Price Chart
IBM 1-Year Stock Price Chart

Some of the lowest estimate analysts were already cautious, assuming IBM’s revenue would rise only about 3.9 percent annually and earnings slip toward US$10.4 billion, and this latest AI driven capex shock could push their view even further from the more optimistic hybrid cloud story you might hear elsewhere.

Explore 13 other fair value estimates on International Business Machines - why the stock might be worth 10% less than the current price!

Form Your Own Verdict

Disagree with existing narratives? Extraordinary investment returns rarely come from following the herd, so go with your instincts.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.