IBM shares plummet as preliminary second quarter results miss expectations

International Business Machines Corp (NYSE:IBM) shares fell about 25% to $217 on Tuesday after the company released preliminary second quarter 2026 results that came in below Wall Street expectations and warned that an unexpected shift in customer spending weighed on its software and infrastructure businesses.

The company reported preliminary operating (non-GAAP) earnings of $2.93 per share on revenue of $17.2 billion. Analysts had expected earnings of $3.01 per share on revenue of $17.86 billion.

Revenue rose 1% from a year earlier. Software revenue increased 5%, consulting revenue was flat, while infrastructure revenue declined 7%.

IBM reported a GAAP gross profit margin of 57.7%, down 100 basis points from a year earlier, while operating gross margin was 59.4%, down 70 basis points. GAAP diluted earnings per share were $2.27, down 2%, while operating EPS increased 5% to $2.93.

Year-to-date net cash from operating activities totaled $7.8 billion, with free cash flow of $4.8 billion.

In a letter to investors, IBM CEO Arvind Krishna attributed the weaker-than-expected performance to customers redirecting capital spending toward hardware purchases late in the quarter.

"In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases," Krishna wrote. "While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization."

Krishna said the spending shift hurt IBM's Z mainframe business and related software, particularly transaction processing, while rapidly evolving cybersecurity concerns also affected customer purchasing decisions.

"These conditions require our teams to execute perfectly, and this quarter we faltered," he wrote. "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."

Despite the weaker quarter, Krishna highlighted areas of strength across the business. Red Hat (NYSE:RHT) revenue growth accelerated to 11%, recent acquisitions including HashiCorp and Confluent performed strongly, and distributed infrastructure revenue rose 37%, supported by growth in Power and Storage systems. Consulting signings also continued to grow, driven by generative AI projects.

Krishna said IBM remains committed to its long-term strategy, pointing to the recent launch of its AI-focused Lightwell platform and continued investment in quantum computing.

IBM said it is still finalizing its financial results and noted that the figures released Tuesday are preliminary and could change slightly. The company will hand down its full Q2 results and provide updated full-year expectations on July 22.