New York, July 14, 2026, 08:06 EDT.
- Preliminary revenue of $17.2 billion was 3.7% below consensus; adjusted earnings of $2.93 a share missed by 3.0%.
- IBM shares dropped about 17% in premarket trading ahead of a regular New York session.
- Adjusted gross profit fell by $8 million from a year earlier, even as adjusted pretax profit increased by $93 million.
International Business Machines NYSE:IBM shares slid about 17% before Tuesday’s opening bell after preliminary second-quarter sales and adjusted earnings missed forecasts. The more consequential signal for investors is that customers’ rush to secure servers, storage and memory diverted spending from IBM’s mainframe-linked software, while expense control rather than gross-profit growth kept adjusted earnings rising.
The reversal was abrupt. IBM had reported first-quarter revenue growth of 9%, with software up 11% and infrastructure up 15%. The preliminary second-quarter figures show growth slowing to 1%, 5% and negative 7%, respectively — a 22-percentage-point swing in infrastructure growth within one quarter.
The timing adds weight to the warning. IBM released selected figures on July 14, while its regular results call remains scheduled for July 22. At the dateline, the New York Stock Exchange’s 9:30 a.m. core session had not opened, making the share-price reaction a premarket verdict.
The sales shortfall was slightly larger than the earnings miss, suggesting that analysts had not anticipated the extent of the late-quarter deal slippage.
| Metric | Q2 preliminary | Analyst consensus | Miss |
|---|---|---|---|
| Revenue | $17.20 billion | $17.86 billion | $660 million, or 3.7% |
| Adjusted EPS | $2.93 | $3.02 | $0.09, or 3.0% |
More revealing is the profit bridge. Adjusted, or non-GAAP, figures exclude acquisition- and retirement-related items. IBM’s adjusted gross profit was effectively unchanged, but adjusted pretax profit rose because combined expenses and other items below the gross-profit line declined by about $101 million.
| Earnings bridge | Q2 2026 | Q2 2025 | Change |
|---|---|---|---|
| Adjusted gross profit | $10.194 billion | $10.202 billion | -$8 million |
| Adjusted pretax income | $3.290 billion | $3.197 billion | +$93 million |
| Implied combined costs and other items | $6.904 billion | $7.005 billion | -$101 million |
| GAAP-to-adjusted EPS gap | $0.66 | $0.49 | +$0.17 |
That arithmetic matters because the entire year-on-year increase in adjusted pretax profit came below the gross-profit line. The gap between GAAP and adjusted earnings also widened by 35% to 66 cents a share; GAAP earnings fell 2%, while adjusted earnings rose 5%. Investors are therefore being asked to place more weight on exclusions just as revenue growth and gross margin weaken.
Chief Executive Arvind Krishna said the outcome was “worse than our expectations.” IBM “faltered” as customers redirected capital spending late in June, and “numerous large deals failed to close,” particularly around the Z mainframe and transaction-processing software. Cybersecurity concerns also distracted buyers, the company said. IBM Newsroom
The mix shift was not uniformly negative. Distributed infrastructure revenue jumped 37% and ended the quarter with roughly $500 million of backlog, while Red Hat growth accelerated to 11%. Cumulative z17 mainframe performance was nearly 130% of the comparable z16 programme. Those figures support, but do not prove, IBM’s argument that timing and budget allocation — rather than a broad collapse in demand — drove much of the miss.
But that explanation cuts both ways. Delayed contracts and the infrastructure backlog could lift subsequent quarters if customers complete purchases. If spending remains concentrated in supply-constrained hardware, however, IBM may continue sacrificing software mix and gross margin. The company stopped short of repeating its April targets for more than 5% constant-currency revenue growth and about $1 billion of additional annual free cash flow, saying it would discuss full-year expectations on July 22.
The July 22 call will therefore turn less on the headline EPS number than on four items: conversion of delayed deals, transaction-processing sales, gross-margin recovery and whether IBM’s full-year growth and cash-flow targets survive the quarter’s spending shock.
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