IBM has scaled back its revenue growth outlook for the year, just days after rattling investors with a warning that businesses are steering their technology budgets toward artificial intelligence infrastructure rather than the company’s software and mainframe systems.
The Armonk, New York-based company also came up short on both profit and revenue for the three-month period ending June 30. Company leaders tried to calm shareholder concerns, arguing that customers focused their spending on AI during the quarter but have no intention of walking away from mainframe computers over the long haul.
IBM’s stock climbed more than 2% in after-hours trading following the announcement.
CEO Arvind Krishna had already rattled markets last week when he acknowledged the company had “faltered” in keeping up with changes in the industry and that “numerous large deals” had fallen through. That admission sent IBM’s stock tumbling 25% in a single day — the steepest one-day decline the company has seen in over a century.
The revised forecast highlights growing investor anxiety that the rush to acquire AI hardware — including servers, chips, and networking equipment — may be causing companies to pull back on broader software spending.
IBM now projects its 2026 revenue will grow between 4% and 5%, a step down from its earlier target of more than 5% growth. The midpoint of that new range falls below analysts’ average estimate of a 4.8% increase, which would put revenue at $70.77 billion, according to figures compiled by LSEG.
Still, some market analysts believe the damage to the broader software industry may be contained. Many point out that IBM itself traced much of the trouble back to its mainframe division, which handles millions of transactions every day for sectors including banking and airlines.
“For the broader software sector, this should be treated as a positive print, with IBM’s software woes more likely to reflect specific IBM-related hardware issues, as management outlined in its investor letter last week,” said CFRA analyst Brooks Idlet.
Revenue from IBM’s Z mainframe line dropped 42% during the second quarter, pulling overall infrastructure revenue down 7% to $3.84 billion.
IBM’s finance chief James Kavanaugh explained the severity of the shortfall in an interview with Reuters. “That mainframe stack of hardware and transaction processing software impacted IBM’s growth by over five points in the quarter,” he said. “We were only expecting about a point or two of an impact.”
Kavanaugh also pushed back on fears of a long-term mainframe exodus, saying the company sees “no evidence of clients moving off a mainframe” and expects “significant outperformance in the program to continue through the second half.”
IBM’s software division posted a 5% revenue gain in the second quarter, bringing in $7.76 billion — though that still fell short of analysts’ average estimate of $7.88 billion.
Overall, the company’s second-quarter revenue edged up 1% to $17.16 billion, missing the $17.58 billion analysts had anticipated. IBM reported a net profit of $2.17 billion, slightly lower than the same period a year ago, while adjusted earnings of $2.93 per share came in below the average estimate of $2.97.
