IBM Lowers Financial Outlook; Analysts: Better Than Feared

According to MarketWatch, IBM (IBM-US) warned last week that its quarterly revenue would fall short of expectations, as customers shifted budgets heavily toward artificial intelligence (AI) hardware, reducing funds available for software investment. The company has now further lowered its full-year financial outlook.

On Wednesday (22nd), IBM stated it expects 2026 revenue growth at constant currency to be between 4% and 5%, down from its previous forecast of over 5%.

The company still maintains its expectation that full-year free cash flow will increase by approximately $1 billion compared to 2025.

Amit Daryanani, an analyst at Evercore, released a report after the financial update, stating the revised outlook was 'better than feared.' He had initially expected the company to lower its forecast to a 'low-to-mid single-digit growth range.'

IBM’s stock initially rebounded in after-hours trading on Wednesday following the news but later turned negative, declining by about 0.5%. IBM’s stock has fallen approximately 30% year-to-date.

James Kavanaugh, IBM’s Chief Financial Officer, said in a statement: 'Although we faced revenue headwinds in the latter part of Q2, we remain focused on the fundamentals of our business, including improving productivity, strengthening our product portfolio, and generating free cash flow.'

'In a quarter like this, maintaining strong financial and operational discipline is critical. We must continue investing in growth while returning value to shareholders through dividends.'

IBM spent $1.6 billion on dividend payments in Q2.

This financial forecast adjustment marks the latest setback for the tech giant as it transforms to meet the AI era. Last week, when IBM issued an earnings warning, it pointed to recent challenges in its mainframe business.

After the warning was issued, IBM’s stock plummeted 25% in a single day, the largest daily drop in the company’s recorded history.

IBM’s financial results released Wednesday afternoon showed Q2 revenue of $17.2 billion, up 1% year-over-year but below the $17.48 billion analysts had expected prior to last week’s preliminary report.

The company’s adjusted earnings per share (EPS) were $2.93, up 5% year-over-year, but slightly below the $2.95 analysts had expected before last week’s announcement.

Kavanaugh said on the earnings call that in the final weeks of June, IBM 'saw a shift in customer spending priorities.' Customers redirected funds 'toward server, storage, and memory procurement to secure supply-constrained infrastructure ahead of expected price increases.'

As a result, 'dozens of large deals did not close as we originally expected, and these deals accounted for most of the revenue shortfall.'

This aligns with the message IBM conveyed when it issued the earnings warning.

Arvind Krishna, IBM’s CEO, said on the call: 'Ultimately, the issue was execution. That’s where we fell short in Q2. We’ve communicated with customers involved in delayed deals and clearly understand what changes need to be made.'