IBM's preliminary results for the second quarter disappointed investors, triggering a 14% decline in the stock on Tuesday morning after the company reported revenue and earnings that missed analyst forecasts.
The firm posted revenue of $17.2 billion for Q2, below the $17.86 billion consensus. Overall revenue rose 1% year-on-year. Breaking down performance by segment, Software revenue grew 5%, Consulting revenue was flat, and Infrastructure revenue fell 7%.
Management attributed the shortfall primarily to weakness in its Z mainframe business and the associated software stack, with particular challenges in Transaction Processing. IBM said customers reallocated quarterly capital expenditures toward purchases of servers, storage and memory to secure constrained supplies ahead of anticipated price increases in late June. The company also pointed to industry-wide cybersecurity concerns that diverted client attention during the quarter.
On profitability, IBM reported GAAP diluted earnings per share of $2.27, a decline of 2% year-over-year. Operating non-GAAP EPS reached $2.93, up 5% year-over-year but short of the consensus estimate of $3.02. GAAP gross profit margin was 57.7%, down 100 basis points, while operating non-GAAP gross profit margin came in at 59.4%, down 70 basis points.
Cash generation remained positive: for the first half of the year IBM generated $7.8 billion in net cash from operating activities and $4.8 billion in free cash flow.
The company also highlighted areas of stronger performance. Red Hat revenue growth accelerated to 11%, and Distributed Infrastructure recorded its best reported performance to date with 37% growth. IBM noted that its z17 mainframe program is running at nearly 130% program-to-program compared with the z16.
IBM plans to host its regularly scheduled conference call on July 22, 2026 to outline full-year expectations and provide detail on initiatives intended to improve results.
Implications and context
The earnings miss and the specific drag from the Z mainframe and transaction-processing software stack were the proximate causes of the sharp stock reaction. While certain software and infrastructure areas showed strength, the overall top-line shortfall and margins below expectations prompted investor concern.