Skip to navigationSkip to main contentSkip to right columnADVERTISEMENTFaizan FarooqueSun, July 19, 2026 at 9:47 PM GMT+2 11 min readIBM's board faced an uncomfortable decision after learning that the company's second quarter had fallen well short of expectations.Directors can now take a breather and wait until the scheduled earnings release and let executives explain the results in detail. Or they could warn investors immediately and risk a violent market reaction.They opted for disclosure.IBM (IBM) shares fell more than 25% on July 14, wiping off approximately $69 billion in market value in the company's worst one-day drop ever. IBM's market valuation is around $202.5 billion, after the stock ended July 17 at $212.67.The early data were disappointing but not bad enough on their own to justify the magnitude of the selloff.IBM estimates revenue for the second quarter to be $17.2 billion, up 1% from a year earlier, and operating earnings of $2.93 a share. Wall Street was looking for about $17.86 billion in sales and $3.02 per share, according to LSEG statistics as cited by Reuters.What spooked investors was the cause for the shortfall.Customers shifted spending to servers, storage, and memory that are needed for artificial intelligence infrastructure. And little hardware went to the front of corporate purchase queues, slowing large IBM software and mainframe-related deals.That suggests a risk that extends well beyond one particularly poor quarter.Artificial intelligence can weaken IBM without replacing it. It can affect IBM by reducing the technological budgets its clients once spent on traditional software, consulting, and mainframe systems."This quarter we faltered," IBM CEO Arvind Krishna wrote in his letter to investors.IBM had a lot of momentum going into the quarter.First-quarter revenue rose 9% to $15.9 billion. Software revenue increased 11%, infrastructure advanced 15%, and IBM Z revenue jumped 51%. Management maintained its expectation for more than 5% constant-currency revenue growth in 2026 and approximately $1 billion of additional annual free cash flow.But the preliminary second-quarter data altered that tale quickly.Software grew at a slower rate of 5%. Consulting revenue was flat. Infrastructure revenue decreased 7%, below management's prior guidance for a low single-digit decline as the first IBM z17 mainframe launch cycle developed.IBM claimed the infrastructure drop was worse than expected due to inadequate Z system performance and related transaction processing software.That counts.IBM did not say large acquisitions had failed or businesses newly acquired were crumbling. Krishna said HashiCorp and Confluent performed well, while Red Hat revenue growth accelerated to 11%.Terms and Privacy PolicyEU DSA contactPrivacy & Cookie SettingsMore Info