Oppenheimer cut its rating on IBM to Perform and withdrew a previously held $350 price objective following the company's negative pre-announcement for second-quarter 2026 results, issued ahead of IBM's July 22 earnings call.
Analyst Param Singh noted that IBM's results fell short of both Oppenheimer's and consensus expectations across all business segments. Total revenue was reported to be essentially flat on a year-over-year basis, up 1% to $17.2 billion.
Management attributed the shortfall to a mix of factors: weakness in Transaction Processing software, a customer spending shift toward servers and storage driven by memory cost pressures, and the slippage of several large deals at the end of the quarter.
In software, revenue rose 5% year-over-year, materially below Oppenheimer's forecast of 12% growth. The firm reported that IBM pointed to mainframe-related software within its portfolio and to large deals slipping past quarter-end - described by IBM as "not lost" - as primary contributors to the miss. These headwinds were partially offset by some pockets of momentum, including RedHat, which accelerated to 11% sequential growth, as well as continued strength at HashiCorp and Confluent.
Infrastructure revenue declined 7% year-over-year, a sharper drop than Oppenheimer's predicted 5% decline. According to the note, gains in distributed infrastructure were insufficient to overcome continued weakness in mainframe-related businesses. Consulting revenue was essentially flat year-over-year, slightly under the firm's 1% growth estimate.
Oppenheimer cautioned that achieving "double-digit" constant-currency software growth in calendar years 2026 and 2027 may be difficult without either significant incremental M&A or a notable catch-up in large deals. The firm summarized its view succinctly: "The bull thesis will take longer to materialize, and we anticipate the stock will be range bound near term."
Oppenheimer also observed a reallocation of IT spend toward hardware, which should benefit server and storage vendors, while flagging a corresponding near-term risk to infrastructure software suppliers if IT budgets remain compressed.
Summary
Oppenheimer downgraded IBM to Perform and removed its $350 price target after the company pre-announced weaker-than-expected Q2 2026 results. Revenue missed across software, infrastructure, and consulting, with total revenue up 1% to $17.2 billion. The firm highlighted a shift in customer spending toward servers and storage, mainframe software weakness, and quarter-end large deal slippage as key drivers of the shortfall.
Key points
- IBM's total revenue rose 1% year-over-year to $17.2 billion, below expectations across all segments.
- Software revenue grew 5% year-over-year, short of Oppenheimer's 12% estimate; RedHat, HashiCorp, and Confluent showed pockets of strength.
- Infrastructure revenue fell 7% year-over-year and consulting was flat, reflecting mainframe weakness and a customer shift toward hardware.
Sectors impacted: Enterprise software, infrastructure hardware (servers and storage), IT services/consulting.
Risks / uncertainties
- Continued softness in mainframe-associated software and Transaction Processing products could pressure software growth - affecting enterprise software vendors.
- A material reallocation of IT budgets toward servers and storage, driven by memory cost dynamics, presents downside risk to infrastructure software vendors.
- Slippage of large deals beyond quarter-end creates uncertainty about the timing of revenue recognition and the durability of sales pipelines.