Track market-moving stories before they get noisy

IBM CEO Arvind Krishna said that only 2% of his company's software could be replaced with applications constructed by artificial intelligence models, as he seeks to reassure Wall Street following disappointing second-quarter results.

"The rest of our software really helps people get ready for AI, unlocking data in real time, reducing the cost and complexity of managing it, going across the hybrid infrastructure, which most of our clients are using," Krishna told CNBC's "Squawk on the Street" on Thursday. "And because it would be what you would call maybe infrastructure software, not applications, I believe it'll be a tailwind for us."

Wall Street has turned skeptical on software stocks over the past couple years due to concerns that AI will disrupt their business models as technology from Anthropic, OpenAI and others gets more powerful. IBM shares are down about 30% this year, and the iShares Expanded Tech-Software Sector Exchange-Traded Fund (IGV) has dropped 17%.

In February, IBM saw shares sink 13% after Anthropic issued a blog post on its Claude Code tool's ability to modernize code written in Cobol, which is often found on mainframes.

Krishna told analysts on Wednesday, after the company's earnings report, that IBM's current-generation z17 mainframe encountered challenges in the quarter. Finance chief Jim Kavanaugh said some customers chose to spend money on other data center equipment, such as servers and storage, as memory prices spike because of AI chip requirements.

For every dollar in revenue IBM generates from mainframe infrastructure, it picks up $3 in software. Just as IBM's Z mainframe business saw revenue drop 42% in the quarter, transaction processing software declined 9%. It was a sudden shift from the first quarter, when Z revenue grew 48%, and transaction processing increased 2%.

During the June quarter, 45% of IBM's revenue came from software, where profit margins are the strongest.

Krishna said Starbucks spends about $2 million per year on IBM software. He said the coffee maker is taking out Tririga lease management software. IBM bought Tririga in 2011, and plans to end support in 2027.

"That is a big component of that 2% I talked about, and I do think that software like that is subject to risk," he said. "By the way, what they had in place was a 10-year-old piece of software."

While IBM stuck with its guidance for a $1 billion bump to free cash flow in 2026, Kavanaugh said Wednesday that he now expects 6% to 8% growth in software revenue for the year. In January, he said he was confident the growth rate would be in the double digits.

Krishna said on Thursday that mainframe hardware capacity is growing, which has implications for software.

"The software on that tends to lag the hardware capacity, and I do think that if we give it another year, you'll find the software will catch back up," he said.

About 75% of deals that slipped from the second quarter should come back to IBM before year end, Krishna said.

"We would avoid giving full credit for the maintained guide until a larger portion of the slipped activity is reflected in reported results," analysts at Jefferies wrote in a Thursday note to clients. They recommend buying the stock.

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International Business Machines Corporation (IBM) Q2 2026 Earnings Call July 22, 2026 5:00 PM EDT

Company Participants

Olympia McNerney - Global Head of Investor Relations
Arvind Krishna - CEO, President & Chairman
James Kavanaugh - CFO and Senior VP of Finance & Operations

Conference Call Participants

Amit Daryanani - Evercore ISI Institutional Equities, Research Division
Brent Thill - Jefferies LLC, Research Division
Benjamin Reitzes - Melius Research LLC
Fatima Boolani - Citigroup Inc., Research Division
Erik Woodring - Morgan Stanley, Research Division
Matthew Swanson - RBC Capital Markets, Research Division

Presentation

Operator

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Olympia McNerney, IBM's Global Head of Investor Relations. Olympia, you may begin.

Olympia McNerney
Global Head of Investor Relations

Thank you. I'd like to welcome you to IBM's Second Quarter 2026 Earnings Presentation. I'm Olympia McNerney, and I'm here today with Arvind Krishna, IBM's Chairman, President and Chief Executive Officer; and Jim Kavanaugh, IBM's Senior Vice President and Chief Financial Officer.

We'll post today's prepared remarks and a replay of today's webcast on the IBM Investor website within a couple of hours. The earnings presentation is already available. To provide additional information to our investors, our presentation includes certain non-GAAP measures. For example, all of our references to revenue and signings growth are at constant currency. We provided reconciliation charts for these and other non-GAAP financial measures at the end of the presentation, which is posted to our investor website.

Finally, some comments made in this presentation may be considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements involve factors that could cause our actual results to differ materially. Additional information about these factors is included in the company's

Company provides updated full-year expectations

, /PRNewswire/ -- IBM (NYSE: IBM) today announced second-quarter 2026 earnings results.

"We are confident in IBM's strategy and portfolio, and in our ability to capture growth opportunities ahead. We fundamentally believe that we are in the early innings of a structural shift for business, and that our portfolio - across software, infrastructure, and consulting - is well-positioned to help our clients tap the value, and manage the challenges, of an AI-driven future," said Arvind Krishna, IBM chairman, president and chief executive officer. "In addition, we are taking action to accelerate our revenue growth and profitability, driving productivity across the company with AI and automation, and heavily investing in commercializing innovation at speed and scale. We now expect constant currency revenue growth in the range of four-to-five percent, and we continue to expect free cash flow to increase by about $1 billion year-over-year for the full year."

Full-Year 2026 Expectations

Revenue: The company now expects full-year constant currency revenue growth in the range of four-to-five percent. At current foreign exchange rates, currency is expected to be neutral to growth for the year Free cash flow: The company continues to expect full-year free cash flow to increase by about $1 billion year-over-year Operational Focus Areas

High-Growth Portfolio: Areas of IBM's software business that help clients manage, deploy and build AI-ready solutions, like Red Hat, the watsonx portfolio, HashiCorp, and Confluent continue to deliver strong performance. Within Distributed Infrastructure, Power and Storage grew at a record pace in the second quarter, now having built up an order backlog of nearly $500 million. Together, these offerings closely map to where client demand is strongest. To capture these growth opportunities, IBM is accelerating changes to its go-to-market model by expanding sales coverage across thousands of additional clients where there is significant opportunity. As AI adoption moves from experimentation to enterprise-scale deployment, the company is also investing in more specialized technical and client-facing talent, including Forward Deployed Engineers. Rapid Innovation at Scale: IBM is acting decisively to capture new opportunities as they arise. Lightwell, a new capability to address open source security vulnerabilities, leverages IBM and Red Hat's trust within the open source community, unique approach to AI, and global scale. In the first two weeks of availability, Lightwell has already made more than 7,500 open source patches available to help clients secure vulnerabilities. Additionally, quantum computing continues to be an investment priority for the company. In May, with the U.S. Department of Commerce, IBM announced a letter of intent to build Anderon, the world's first pure-play quantum wafer foundry. IBM will invest more than $10 billion in quantum over the next five years, and remains on track to deliver the first large-scale fault-tolerant quantum computer by 2029. Productivity Enables Investment and Value: IBM is accelerating productivity by scaling software development leveraging AI, increasing the effectiveness of its sales and marketing organization, and optimizing its supply chain. These efforts help enhance margin and free cash flow, and strengthen the company's ability to capture significant growth opportunities. The company now expects improved pre-tax income margin expansion for the full year. "Although we faced revenue headwinds late in the second quarter, we continued to focus on the fundamentals of our business, including driving productivity, strengthening our portfolio, and generating free cash flow," said James Kavanaugh, IBM senior vice president and chief financial officer. "In a quarter like this, it is critical that our financial and operational discipline remains strong and that we continue to invest for growth while returning value to shareholders through our dividend."

  SECOND-QUARTER 2026 INCOME STATEMENT SUMMARY

  Revenue

  Gross

Profit

    Gross

Profit

Margin

    Pre-tax

Income

  Pre-tax

Income

Margin

  Net

Income

  Diluted

Earnings

Per Share

GAAP from

Continuing

Operations

$ 17.2 B

    $  9.9  B

    57.7

%

  $  2.5  B

    14.4

%

  $  2.2  B

    $   2.27

  Year/Year

1

%

  (1)

%

  (1.0)

Pts

  (5)

%

  (0.9)

Pts

  (1)

%

  (2)

%

Operating

(Non-GAAP)

      $ 10.2 B

    59.4

%

  $  3.3  B

    19.2

%

  $  2.8  B

    $   2.93

  Year/Year

      0

%

  (0.7)

Pts

  3

%

  0.3

Pts

  5

%

  5

%

Segment Results for Second Quarter

Software — revenues of $7.8 billion, up 5 percent:
- Hybrid Cloud (Red Hat) up 11 percent
- Automation up 4 percent, up 3 percent at constant currency
- Data up 19 percent, up 18 percent at constant currency
- Transaction Processing down 8 percent, down 9 percent at constant currency Consulting — revenues of $5.3 billion, flat, up 1 percent at constant currency:
- Strategy and Technology flat, up 1 percent at constant currency
- Intelligent Operations flat, up 1 percent at constant currency Infrastructure — revenues of $3.8 billion, down 7 percent:
- Hybrid Infrastructure down 10 percent
      -- IBM Z down 42 percent
      -- Distributed Infrastructure up 37 percent
- Infrastructure Support down 1 percent Financing — revenues of $0.2 billion, up 12 percent, up 11 percent at constant currency Cash Flow and Balance Sheet

In the second quarter, the company generated net cash from operating activities of $2.6 billion, up $0.9 billion year to year. IBM's free cash flow was $2.5 billion, down $0.3 billion year to year. The company returned $1.6 billion to shareholders in dividends in the second quarter.

For the first six months of the year, the company generated net cash from operating activities of $7.8 billion, up $1.7 billion year to year. IBM's free cash flow was $4.8 billion, flat year to year.

IBM ended the second quarter with $8.2 billion of cash, restricted cash and marketable securities, down $6.3 billion from year-end 2025. The company invested $10.5 billion in acquisitions this year. Debt, including IBM Financing debt of $13.0 billion, totaled $62.0 billion, up $0.7 billion year to date.

Dividend Declaration

The IBM board of directors approved a regular quarterly cash dividend of $1.69 per common share, to stockholders of record on August 10, 2026. With payment of the September 10, 2026 dividend, IBM will have paid consecutive quarterly dividends every year since 1916.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company's current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, the following: a downturn in economic environment and client spending budgets; a failure of the company's innovation initiatives; damage to the company's reputation; risks from investing in growth opportunities; failure of the company's intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; the company's ability to successfully manage acquisitions, alliances and divestitures, including integration challenges, failure to achieve objectives, the assumption or retention of liabilities and higher debt levels; fluctuations in financial results; impact of local legal, economic, political, health and other conditions; the company's failure to meet growth and productivity objectives; ineffective internal controls; the company's use of accounting estimates; impairment of the company's goodwill or amortizable intangible assets; the company's ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product and service quality issues; the development and use of AI, including the company's increased AI solutions and use of AI technologies; impacts of business with government clients; reliance on third party distribution channels and ecosystems; cybersecurity and data protection considerations; adverse effects related to climate change and other environmental matters; tax matters; legal proceedings and investigatory risks; the company's pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company's Form 10-Qs, Form 10-K and in the company's other filings with the U.S. Securities and Exchange Commission or in materials incorporated therein by reference.

Any forward-looking statement in this release speaks only as of the date on which it is made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements.

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information, which management believes provides useful information to investors:

adjusting for currency (i.e., at constant currency); presenting operating (non-GAAP) earnings per share amounts and related income statement items; free cash flow; net cash from operating activities excluding IBM Financing receivables; adjusted EBITDA; adjusted EBITDA margin. The rationale for management's use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8-K that includes this press release and is being submitted today to the SEC.

Conference Call and Webcast

IBM's regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. ET, today. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-2q26. Presentation charts will be available shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; $ in millions except per share amounts)

    Three Months Ended
June 30,

    Six Months Ended
June 30,

    2026

    2025

    2026

    2025

  REVENUE BY SEGMENT

                      Software

$        7,761

    $        7,387

    $       14,813

    $       13,722

  Consulting

5,327

    5,314

    10,599

    10,382

  Infrastructure

3,835

    4,142

    7,161

    7,027

  Financing

186

    166

    406

    357

  Other

52

    (31)

    100

    30

  TOTAL REVENUE

17,162

    16,977

    33,079

    31,519

                          GROSS PROFIT

9,907

    9,977

    18,857

    18,008

                          GROSS PROFIT MARGIN

                      Software

82.6

%

  83.9

%

  82.7

%

  83.7

%

Consulting

28.9

%

  27.5

%

  28.2

%

  27.4

%

Infrastructure

58.4

%

  61.5

%

  57.7

%

  57.9

%

Financing

42.5

%

  45.7

%

  43.0

%

  45.8

%

                        TOTAL GROSS PROFIT MARGIN

57.7

%

  58.8

%

  57.0

%

  57.1

%

                        EXPENSE AND OTHER INCOME

                      SG&A

4,981

    5,027

    10,071

    9,913

  R&D

2,311

    2,097

    4,485

    4,047

  Intellectual property and custom development income

(166)

    (215)

    (338)

    (468)

  Other (income) and expense

(185)

    (39)

    (186)

    (204)

  Interest expense

486

    510

    959

    965

  TOTAL EXPENSE AND OTHER INCOME

7,428

    7,380

    14,991

    14,253

                          INCOME FROM CONTINUING OPERATIONS

BEFORE INCOME TAXES

2,479

    2,597

    3,866

    3,755

  Pre-tax income margin

14.4

%

  15.3

%

  11.7

%

  11.9

%

Provision for/(benefit from) income taxes

313

    404

    484

    507

  Effective tax rate

12.6

%

  15.5

%

  12.5

%

  13.5

%

                        INCOME FROM CONTINUING OPERATIONS

$        2,166

    $        2,193

    $         3,382

    $         3,248

                          DISCONTINUED OPERATIONS

                      Income/(loss)  from discontinued operations, net of

taxes

(1)

    1

    (1)

    1

                          NET INCOME

$        2,165

    $        2,194

    $         3,381

    $         3,249

                          EARNINGS PER SHARE OF COMMON STOCK

                      Assuming dilution

                      Continuing operations

$          2.27

    $          2.31

    $           3.55

    $           3.43

  Discontinued operations

$          0.00

    $          0.00

    $           0.00

    $           0.00

  TOTAL

$          2.27

    $          2.31

    $           3.55

    $           3.43

                          Basic

                      Continuing operations

$          2.30

    $          2.36

    $           3.60

    $           3.49

  Discontinued operations

$          0.00

    $          0.00

    $           0.00

    $           0.00

  TOTAL

$          2.30

    $          2.36

    $           3.60

    $           3.50

                          WEIGHTED-AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING (M's)

                      Assuming dilution

953.3

    948.0

    952.7

    946.7

  Basic

941.2

    930.8

    939.9

    929.4

  INTERNATIONAL BUSINESS MACHINES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

  ($ in millions)

  At June 30,
2026

  At December 31,
2025

ASSETS:

        Current assets:

        Cash and cash equivalents

  $             7,172

  $              13,587

Restricted cash

  45

  54

Marketable securities

  960

  830

Notes and accounts receivable - trade, net

  6,044

  8,112

Short-term financing receivables

          Held for investment, net

  5,782

  7,344

  Held for sale

  874

  1,131

Other accounts receivable, net

  1,348

  1,052

Inventories

  1,746

  1,220

Deferred costs

  1,238

  1,084

Prepaid expenses and other current assets

  3,188

  2,530

Total current assets

  28,398

  36,944

          Property, plant and equipment, net

  5,736

  5,899

Operating right-of-use assets, net

  3,068

  3,129

Long-term financing receivables, net

  7,126

  7,708

Prepaid pension assets

  7,645

  7,544

Deferred costs

  835

  825

Deferred taxes

  8,709

  8,610

Goodwill

  74,599

  67,717

Intangibles, net

  13,955

  11,391

Investments and sundry assets

  2,028

  2,112

Total assets

  $          152,099

  $            151,880

          LIABILITIES:

        Current Liabilities:

        Taxes

  $              2,023

  $                2,347

Short-term debt

  5,775

  6,424

Accounts payable

  4,395

  4,756

Compensation and benefits

  3,364

  4,114

Deferred income

  16,160

  16,101

Operating lease liabilities

  770

  800

Other liabilities

  3,425

  4,116

Total current liabilities

  35,912

  38,658

          Long-term debt

  56,212

  54,836

Retirement-related obligations

  8,603

  9,018

Deferred income

  4,272

  4,271

Operating lease liabilities

  2,515

  2,547

Other liabilities

  10,044

  9,810

Total liabilities

  117,558

  119,139

          EQUITY:

        IBM stockholders' equity:

        Common stock

  64,600

  63,318

Retained earnings

  155,937

  155,648

Treasury stock - at cost

  (170,934)

  (170,605)

Accumulated other comprehensive income/(loss)

  (15,151)

  (15,713)

Total IBM stockholders' equity

  34,452

  32,648

          Noncontrolling interests

  89

  93

Total equity

  34,541

  32,740

          Total liabilities and equity

  $          152,099

  $            151,880

INTERNATIONAL BUSINESS MACHINES CORPORATION

STATEMENT OF CASH FLOWS

(Unaudited)

      Three Months Ended
June 30,

  Six Months Ended
June 30,

($ in millions)

  2026

  2025 (1)

  2026

  2025 (1)

Cash flows from operating activities:

                Net income

  $     2,165

  $     2,194

  $     3,381

  $     3,249

Adjustments to reconcile net income to cash provided by operating

activities:

                Depreciation (2)

  533

  578

  1,088

  1,114

Amortization of capitalized software and acquired intangible assets

  817

  687

  1,535

  1,328

Stock-based compensation

  498

  441

  1,004

  842

Net (gain)/loss on divestitures, asset sales and other

  (67)

  (18)

  (78)

  (40)

Changes in operating assets and liabilities, net of

acquisitions/divestitures

  (1,349)

  (2,180)

  836

  (421)

Net cash provided by operating activities

  2,597

  1,701

  7,766

  6,071

                  Cash flows from investing activities:

                Payments for property, plant and equipment

  (229)

  (209)

  (461)

  (454)

Proceeds from disposition of property, plant and equipment/other

  23

  37

  31

  111

Investment in software

  (154)

  (164)

  (313)

  (314)

Purchases of marketable securities and other investments

  (1,259)

  (1,255)

  (2,871)

  (7,740)

Proceeds from disposition of marketable securities and other

investments

  1,152

  4,036

  3,123

  4,962

Acquisition of businesses, net of cash acquired

  (15)

  (747)

  (10,480)

  (7,845)

Divestiture of businesses, net of cash transferred

  -

  -

  1

  (1)

Net cash provided by/(used in) investing activities

  (481)

  1,698

  (10,970)

  (11,281)

                  Cash flows from financing activities:

                Proceeds from new debt

  0

  7

  7,437

  8,385

Payments to settle debt

  (4,213)

  (1,308)

  (7,141)

  (2,565)

Short-term borrowings/(repayments) less than 90 days - net

  1

  0

  0

  (29)

Common stock repurchases for tax withholdings

  (116)

  (153)

  (465)

  (437)

Proceeds from issuance of shares

  240

  186

  418

  401

Financing - other

  (49)

  (22)

  (91)

  (54)

Cash dividends paid

  (1,590)

  (1,563)

  (3,166)

  (3,112)

Net cash provided by/(used in) financing activities

  (5,728)

  (2,855)

  (3,008)

  2,589

                  Effect of exchange rate changes on cash, cash equivalents and restricted

cash

  (35)

  320

  (211)

  487

Net change in cash, cash equivalents and restricted cash

  (3,646)

  865

  (6,423)

  (2,134)

                  Cash, cash equivalents and restricted cash at the beginning of the period

  10,864

  11,161

  13,640

  14,160

Cash, cash equivalents and restricted cash at the end of the period

  $     7,217

  $   12,026

  $     7,217

  $   12,026

_____________________

(1) Reclassified to align with the Consolidated Statement of Cash Flows presentation.

(2) Includes operating lease right-of-use assets amortization.

INTERNATIONAL BUSINESS MACHINES CORPORATION

GAAP NET INCOME TO ADJUSTED EBITDA RECONCILIATION

(Unaudited)

      Three Months Ended

June 30,

  Six Months Ended

June 30,

($ in billions)

  2026

2025

Yr/Yr

  2026

2025

Yr/Yr

Net income as reported (GAAP)

  $   2.2

$   2.2

$  0.0

  $   3.4

$   3.2

$  0.1

Less: income from discontinued operations, net of tax

  0.0

0.0

0.0

  0.0

0.0

0.0

Income from continuing operations

  2.2

2.2

0.0

  3.4

3.2

0.1

Provision for/(benefit from) income taxes from continuing ops.

  0.3

0.4

(0.1)

  0.5

0.5

0.0

Pre-tax income from continuing operations (GAAP)

  2.5

2.6

(0.1)

  3.9

3.8

0.1

Non-operating adjustments (before tax)

                Acquisition-related charges (1)

  0.7

0.6

0.1

  1.4

1.1

0.2

Non-operating retirement-related costs/(income)

  0.1

0.0

0.1

  0.2

0.0

0.1

                  Operating (non-GAAP) pre-tax income from continuing ops.

  3.3

3.2

0.1

  5.4

4.9

0.5

                  Net interest expense

  0.4

0.3

0.1

  0.7

0.6

0.1

Depreciation/amortization of non-acquired intangible assets

  0.7

0.7

0.0

  1.4

1.4

0.0

Stock-based compensation

  0.5

0.4

0.1

  1.0

0.8

0.2

Workforce rebalancing charges

  0.0

0.0

0.0

  0.4

0.3

0.0

Corporate (gains) and charges (2)

  (0.1)

0.0

(0.1)

  (0.1)

0.0

(0.1)

                  Adjusted EBITDA

  $   4.8

$   4.7

$  0.1

  $   8.8

$   8.1

$  0.7

                  Revenue

  $ 17.2

$ 17.0

1 %

  $ 33.1

$ 31.5

5 %

GAAP net income margin

  12.6 %

12.9 %

(0.3)pts

  10.2 %

10.3 %

(0.1)pts

Adjusted EBITDA margin

  27.8 %

27.6 %

0.2pts

  26.5 %

25.7 %

0.8pts

___________________

(1) Primarily consists of amortization of acquired intangible assets.

(2) Primarily consists of unique corporate actions such as gains on divestitures and asset sales.

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

      Three Months Ended June 30, 2026

                            ($ in millions)

  Software

    Consulting

    Infrastructure

    Financing

  Revenue

  $          7,761

    $          5,327

    $           3,835

    $           186

  Segment profit

  $          2,502

    $             647

    $              835

    $           108

  Segment profit margin

  32.2

%

  12.1

%

  21.8

%

  58.0

%

Change YTY revenue

  5.1

%

  0.2

%

  (7.4)

%

  12.2

%

Change YTY revenue - constant currency

  4.6

%

  1.1

%

  (7.4)

%

  11.3

%

      Three Months Ended June 30, 2025

                            ($ in millions)

   Software

    Consulting

    Infrastructure

    Financing

  Revenue

  $          7,387

    $          5,314

    $           4,142

    $           166

  Segment profit

  $          2,296

    $             562

    $              965

    $           179

  Segment profit margin

  31.1

%

  10.6

%

  23.3

%

  107.9

%

      Six Months Ended June 30, 2026

                            (Dollars in Millions)

  Software

    Consulting

    Infrastructure

    Financing

  Revenue

  $        14,813

    $        10,599

    $           7,161

    $           406

  Segment Profit

  $          4,601

    $          1,205

    $           1,360

    $           226

  Segment Profit Margin

  31.1

%

  11.4

%

  19.0

%

  55.8

%

Change YTY Revenue

  7.9

%

  2.1

%

  1.9

%

  13.6

%

Change YTY Revenue - Constant Currency

  6.1

%

  1.0

%

  0.5

%

  10.7

%

      Six Months Ended June 30, 2025

                            (Dollars in Millions)

   Software

    Consulting

    Infrastructure

    Financing

  Revenue

  $        13,722

    $        10,382

    $           7,027

    $           357

  Segment Profit

  $          4,143

    $          1,121

    $           1,213

    $           248

  Segment Profit Margin

  30.2

%

  10.8

%

  17.3

%

  69.3

%

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; $ in millions except per share amounts)

    Three Months Ended June 30, 2026

    Continuing Operations

    GAAP

    Acquisition-

Related

Adjustments (1)

    Retirement-

Related

Adjustments (2)

    Tax

Reform

Impacts

    Operating

(Non-

GAAP)

  Gross profit

$  9,907

    $                    287

    $                    —

    $         —

    $       10,194

  Gross profit margin

57.7

%

  1.7

pts

  —

pts

  —

pts

  59.4

%

SG&A

$  4,981

    $                   (421)

    $                    —

    $         —

    $         4,560

  Other (income) & expense

(185)

    1

    (96)

    —

    (280)

  Total expense & other (income)

7,428

    (429)

    (96)

    —

    6,903

  Pre-tax income from continuing operations

2,479

    716

    96

    —

    3,290

  Pre-tax income margin from continuing

operations

14.4

%

  4.2

pts

  0.6

pts

  —

pts

  19.2

%

Provision for/(benefit from) income taxes (3)

$     313

    $                    167

    $                   20

    $          (2)

    $            498

  Effective tax rate

12.6

%

  2.3

pts

  0.2

pts

  (0.1)

pts

  15.1

%

Income from continuing operations

$  2,166

    $                    548

    $                   76

    $           2

    $         2,792

  Income margin from continuing operations

12.6

%

  3.2

pts

  0.4

pts

  0.0

pts

  16.3

%

Diluted earnings per share: continuing

operations

$    2.27

    $                   0.58

    $                0.08

    $      0.00

    $           2.93

      Three Months Ended June 30, 2025

    Continuing Operations

    GAAP

    Acquisition-

Related

Adjustments (1)

    Retirement-

Related

Adjustments (2)

    Tax

Reform

Impacts

    Operating

(Non-

GAAP)

  Gross profit

$  9,977

    $                    225

    $                    —

    $         —

    $       10,202

  Gross profit margin

58.8

%

  1.3

pts

  —

pts

  —

pts

  60.1

%

SG&A

$  5,027

    $                   (348)

    $                    —

    $         —

    $         4,679

  Other (income) & expense

(39)

    (1)

    (25)

    —

    (65)

  Total expense & other (income)

7,380

    (350)

    (25)

    —

    7,005

  Pre-tax income from continuing operations

2,597

    575

    25

    —

    3,197

  Pre-tax income margin from continuing

operations

15.3

%

  3.4

pts

  0.1

pts

  —

pts

  18.8

%

Provision for/(benefit from) income taxes (3)

$     404

    $                    132

    $                     9

    $         —

    $            545

  Effective tax rate

15.5

%

  1.3

pts

  0.2

pts

  —

pts

  17.0

%

Income from continuing operations

$  2,193

    $                    443

    $                   17

    $         —

    $         2,652

  Income margin from continuing operations

12.9

%

  2.6

pts

  0.1

pts

  —

pts

  15.6

%

Diluted earnings per share: continuing

operations

$    2.31

    $                   0.47

    $                0.02

    $         —

    $           2.80

  ____________________

(1) Includes amortization of acquired intangible assets and acquisition-related charges such as in-process research and development, transaction

      costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration, and pre-closing charges, such as

      financing costs.

(2) Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan

      curtailments/settlements and pension insolvency costs and other costs.

(3) The tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to

      the GAAP pre-tax income.

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION

(Unaudited; $ in millions except per share amounts)

        Six Months Ended June 30, 2026

    Continuing Operations

    GAAP

    Acquisition-

Related

Adjustments (1)

    Retirement-

Related

Adjustments (2)

  Tax

Reform

Impacts

    Operating

(Non-

GAAP)

  Gross Profit

$ 18,857

    $                  524

    $                    —

    $         —

    $   19,380

  Gross Profit Margin

57.0

%

  1.6

pts

  —

pts

  —

pts

  58.6

%

SG&A

$ 10,071

    $                (829)

    $                    —

    $         —

    $     9,242

  Other (Income) & Expense

(186)

    1

    (192)

    —

    (378)

  Total Expense & Other (Income)

14,991

    (838)

    (192)

    —

    13,961

  Pre-tax Income from Continuing Operations

3,866

    1,361

    192

    —

    5,419

  Pre-tax Income Margin from Continuing

Operations

11.7

%

  4.1

pts

  0.6

pts

  —

pts

  16.4

%

Provision for/(Benefit from) Income Taxes (3)

$      484

    $                 305

    $                   23

    $         (6)

    $        806

  Effective Tax Rate

12.5

%

  2.5

pts

  0.0

pts

  (0.1)

pts

  14.9

%

Income from Continuing Operations

$   3,382

    $              1,056

    $                 169

    $           6

    $     4,613

  Income Margin from Continuing Operations

10.2

%

  3.2

pts

  0.5

pts

  0.0

pts

  13.9

%

Diluted Earnings Per Share: Continuing

Operations

$     3.55

    $                1.11

    $                0.18

    $     0.01

    $       4.84

      Six Months Ended June 30, 2025

    Continuing Operations

    GAAP

    Acquisition-

Related

Adjustments (1)

    Retirement-

Related

Adjustments (2)

    Tax

Reform

Impacts

    Operating

(Non-

GAAP)

  Gross Profit

$ 18,008

    $                  426

    $                    —

    $         —

    $   18,434

  Gross Profit Margin

57.1

%

  1.4

pts

  —

pts

  —

pts

  58.5

%

SG&A

$   9,913

    $                (701)

    $                    —

    $         —

    $     9,212

  Other (Income) & Expense

(204)

    (1)

    (48)

    —

    (253)

  Total Expense & Other (Income)

14,253

    (706)

    (48)

    —

    13,499

  Pre-tax Income from Continuing Operations

3,755

    1,132

    48

    —

    4,935

  Pre-tax Income Margin from Continuing

Operations

11.9

%

  3.6

pts

  0.2

pts

  —

pts

  15.7

%

Provision for/(Benefit from) Income Taxes (3)

$      507

    $                 260

    $                    (3)

    $           2

    $        766

  Effective Tax Rate

13.5

%

  2.2

pts

  (0.2)

pts

  0.0

pts

  15.5

%

Income from Continuing Operations

$   3,248

    $                 872

    $                   51

    $         (2)

    $     4,169

  Income Margin from Continuing Operations

10.3

%

  2.8

pts

  0.2

pts

  0.0

pts

  13.2

%

Diluted Earnings Per Share: Continuing

Operations

$     3.43

    $                0.92

    $                0.05

    $     0.00

    $       4.40

  ____________________

(1) Includes amortization of acquired intangible assets, and acquisition-related charges such as in-process research and development, transaction

      costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration, and pre-closing charges, such as

      financing costs.

(2) Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan

      curtailments/settlements and pension insolvency costs and other costs.

(3) The tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to

      the GAAP pre-tax income.

INTERNATIONAL BUSINESS MACHINES CORPORATION

GAAP OPERATING CASH FLOW TO FREE CASH FLOW RECONCILIATION

(Unaudited)

      Three Months Ended
June 30,

  Six Months Ended
June 30,

($ in millions)

  2026

  2025

  2026

  2025

Net cash provided by operating activities per GAAP

  $     2,597

  $     1,701

  $     7,766

  $     6,071

                  Less: change in IBM Financing receivables

  (302)

  (1,480)

  2,264

  606

                  Net cash from operating activities excl. IBM Financing receivables

  2,899

  3,182

  5,503

  5,465

                  Capital expenditures, net

  (359)

  (336)

  (743)

  (657)

                  Free cash flow

  $     2,540

  $     2,845

  $     4,760

  $     4,808

INTERNATIONAL BUSINESS MACHINES CORPORATION

GAAP OPERATING CASH FLOW TO ADJUSTED EBITDA RECONCILIATION

(Unaudited)

      Three Months Ended
June 30,

  Six Months Ended
June 30,

($ in billions)

  2026

  2025

  2026

  2025

Net cash provided by operating activities

  $   2.6

  $   1.7

  $   7.8

  $   6.1

                  Add:

                Net interest expense

  0.4

  0.3

  0.7

  0.6

Provision for/(benefit from) income taxes from continuing operations

  0.3

  0.4

  0.5

  0.5

                  Less change in:

                Financing receivables

  (0.3)

  (1.5)

  2.3

  0.6

Net (gain)/loss on divestitures, assets sales and other (1)

  (0.1)

  0.0

  (0.1)

  0.0

Other assets and liabilities/other, net (1,2)

  (1.1)

  (0.7)

  (2.0)

  (1.5)

                  Adjusted EBITDA

  $   4.8

  $   4.7

  $   8.8

  $   8.1

                  Revenue

  $ 17.2

  $ 17.0

  $ 33.1

  $ 31.5

Net cash provided by operating activities margin

  15.1 %

  10.0 %

  23.5 %

  19.3 %

Adjusted EBITDA margin

  27.8 %

  27.6 %

  26.5 %

  25.7 %

____________________

(1) Reclassified to align with the presentation of similar line items in the Statement of Cash Flows.

(2) Mainly consists of Changes in operating assets and liabilities, net of acquisitions/divestitures in the Statement of Cash Flows chart,

      workforce rebalancing charges, non-operating impacts, and corporate (gains) and charges, less the change in Financing receivables.

SOURCE IBM

International Business Machines Corporation (NYSE:IBM) will release its second quarter earnings report after the closing bell on Wednesday, July 22.

Analysts expect the Armonk, New York-based company to report quarterly earnings of $2.92 per share, up from $2.80 per share in the year-ago period. The consensus estimate for IBM’s quarterly revenue is $17.33 billion. It reported $16.98 billion last year, according to Benzinga Pro.

On July 14, the company said it expects second-quarter revenue of $17.2 billion, up 1% from a year earlier but below the Wall Street consensus estimate of $17.86 billion.

IBM shares fell 1.2% to close at $210.50 on Tuesday.

Benzinga readers can access the latest analyst ratings on the Analyst Stock Ratings page. Readers can sort by stock ticker, company name, analyst firm, rating change or other variables.

Let’s have a look at how Benzinga’s most-accurate analysts have rated the company in the recent period.

Considering buying IBM stock? Here’s what analysts think:

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Market News and Data brought to you by Benzinga APIs

© 2026 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Key Takeaways IBM's Consulting revenues are estimated at $5.4B, up from $5.31B in the year-ago quarter.IBM's Google Cloud partnership may support AI adoption, modernization and consulting revenues.IBM Autonomous Security uses AI agents to automate threat response and reduce operational friction. International Business Machines Corporation (IBM - Free Report) is scheduled to report second-quarter 2026 earnings after the closing bell on July 22. In the to-be-reported quarter, the company is likely to have recorded higher revenues from the Consulting segment, backed by rising demand for technology consulting and business transformation services.

Factors at PlayThe Consulting segment comprises Strategy and Technology (previously reported as Business Transformation and Technology Consulting) and Intelligent Operations (previously reported as Application Operations). It provides consulting and application management services that offer value and innovation to clients by leveraging industry, technology and business strategy and process know-how.

During the to-be-reported quarter, IBM partnered with Google Cloud to help businesses adopt AI faster and modernize their technology systems. The deal creates a new Google Cloud Practice within IBM Consulting, combining IBM’s industry expertise and AI-powered IBM Consulting Advantage platform with Google Cloud’s Gemini Enterprise AI platform. The collaboration strengthens the company’s expertise in cybersecurity, data management and cloud infrastructure. By integrating Google Cloud’s Gemini AI capabilities with its watsonx platform and using technologies such as Red Hat OpenShift, HashiCorp, Apptio, BigQuery and Confluent, IBM aims to help businesses improve automation, gain deeper data insights and enhance operational efficiency. These are likely to have generated additional revenues for the Consulting segment.

In the second quarter, the company launched IBM Autonomous Security, a multi-agent-powered service with interoperable, vendor-agnostic digital workers that operate across an organization's entire security operations for coordinated decision-making, response and intelligence at machine speed. This has helped business enterprises reduce operational friction and improve resiliency while strengthening compliance outcomes.

Leveraging coordinated AI agents, IBM Autonomous Security helps to analyze potential exploit paths to enforce security policies across the applicable security tools and contain threats with minimal human intervention. Offering deep visibility into security gaps, policy weaknesses and AI-specific exposures, it helps to reduce exposure windows and accelerate containment of high-velocity attacks. This will help to provide a holistic and integrative threat management approach to help security analysts better comprehend critical threats. In addition, it will reduce manual investigations and operational tasks with auto-recommend actions based on the historical patterns of analyzed activity and pre-set confidence levels. This, in turn, will help to effectively mitigate multi-dimensional cyber threats that have become rampant over time.

Overall ExpectationsThe Zacks Consensus Estimate for Consulting revenues is pegged at $5.4 billion, indicating an improvement from $5.31 billion in the year-ago quarter.

The Zacks Consensus Estimate for total revenues for the company is pegged at $17.59 billion. It generated revenues of $16.98 billion in the prior-year quarter. The consensus mark for earnings is currently pegged at $3.00 per share, indicating growth from $2.8 in the year-earlier quarter.

Earnings WhispersOur proven model does not conclusively predict an earnings beat for IBM for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

IBM currently has an ESP of -0.76% with a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to ConsiderHere are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Pinterest, Inc. (PINS - Free Report) is set to release quarterly numbers on Aug. 4. It has an Earnings ESP of +1.65% and carries a Zacks Rank #3.

The Earnings ESP for Arista Networks, Inc. (ANET - Free Report) is +0.84% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Aug. 4.

The Earnings ESP for Silicon Motion Technology Corporation (SIMO - Free Report) is +7.68% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on July 29.

HomeEarnings AnalysisTech 

SummaryWhen IBM reports their actual Q2 ’26 results Wednesday night, July 22nd after the closing bell, analyst consensus has lowered expectations after the negative IBM pre-announcement last week that dropped the stock 25% during the trading day.The consensus revenue estimate was $17.7 billion but is now $16.9 billion. The consensus EPS estimate was $3.00 but is now $2.88.IBM management has given off a lot of mixed signals, mostly on AI, where they withdrew their AI guidance on the April ’26 call by effectively not updating the AI book even though AI metrics were given on the previous three conference calls, which showed the AI book was growing. Getty Images

Since IBM broke out to an all-time high (above the April 2013 high of $215-216 per share), the stock has been range-bound between $200 at the low end and $325-335 at the high end of the trading range. The peak price prints, or all-time

11.34K Followers

It's never good when a CEO admits, "This quarter we faltered." But that's the situation facing International Business Machines (IBM +3.87%) this week, as CEO Arvind Krishna made the rare acknowledgment in a letter to shareholders.

Krishna's acknowledgment came as IBM issued preliminary earnings results for the second quarter, warning that sales were lower than anticipated as customers shifted spending away from IBM and into memory and storage products ahead of anticipated price increases. "These conditions require our teams to execute perfectly, and this quarter we faltered," he wrote. "We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall."

IBM stock tumbled 25% -- the worst day in its 115-year history -- and is now down 26% so far in 2026.

Image source: Getty Images.

But remember, IBM stock had been on the rise before this week's disaster; shares were up 35% in 2025 on the strength of its mainframe and server business. It's also a reliable dividend stock, with a 3.1% yield that's far above average for tech stocks, and has increased the dividend for 31 consecutive years.

Is IBM's earnings miss an anomaly? Perhaps this is an opportunity to pick up deeply discounted shares.

The case for buying IBM in 2026 As Krishna points out, the biggest problem for IBM right now is that customers are diverting money from the company to storage and memory products. Data centers require ample DRAM and NAND storage, and manufacturers like Micron Technology are reaping the benefits.

However, I see this as a short-term problem. The DRAM and NAND supply is expected to remain tight through the second half of this year, but eventually the supply-demand balance will correct itself.

Today's Change

(

3.87

%) $

8.17

Current Price

$

219.37

IBM is rolling out its new z17 mainframes, powered by Telum II processors and Spyre Accelerator chips, to process AI workloads. The z17 allows customers to run AI on the platform alongside their enterprise data, rather than transferring it to the cloud for inference. I expect the z17 to eventually be a significant driver for IBM, even though market conditions are causing revenue to be down this quarter.

Also, IBM is a top company in the growth of quantum computing. It's on track to deliver the first large-scale fault-tolerant quantum computer by 2029, and plans to invest more than $10 billion in quantum computing in the next five years.

IBM is still projecting $17.2 billion in revenue for the second quarter and year-to-date free cash flow of $4.8 billion when it reports final numbers on July 22. However, I'll be watching to see if management adjusts its full-year guidance of 5% revenue growth and free cash flow of $15.7 billion. If it can maintain that guidance, then I feel really good about IBM in the second half of the year, and would expect shares of this top dividend stock to begin a steady recovery.

New IBM Power Autonomous Operations software identifies and resolves capacity constraints up to 15x1 faster than manually performing the operation IBM Bob™ Premium Package for i helps accelerate application development on IBM i Entry-level Power S1112 server helps enterprises innovate at every scale , /PRNewswire/ -- IBM (NYSE: IBM) today announced IBM Power Autonomous Operations, an AI agent that can help continuously monitor Power systems and autonomously resolve issues to keep operations running smoothly. It complements the recently launched IBM Bob™ Premium Package for i, which brings agentic-driven software designed to accelerate application development on IBM i. These capabilities can accelerate building modern applications so enterprises can innovate at the pace required by their business. Additionally, the entry-level Power S1112 server provides a new compact, efficient option powerful enough to run AI inference locally.

IBM Power S1112, a 1-socket, half-wide Power11 server. (Image credit: Thomas Prior for IBM)

IBM PowerS1112, tower chassis form factor. (Image credit: Thomas Prior for IBM) IBM Power has long been IBM's platform for mission-critical enterprise workloads. As AI becomes part of that critical infrastructure, Power is built to support it.  IBM introduced Power11 last year as autonomous IT for the AI era, built for availability, resiliency, and scale across on-premises and IBM Cloud environments. IBM Power Virtual Server is a fully managed cloud service on which enterprises can run AIX, IBM i and Linux workloads while offloading much of the routine management for system operations. Now, IBM is embedding autonomous IT across the Power platform, from code to runtime, with new capabilities and systems.

According to the IBM IBV 2026 Tech Leader Study: Building the IT foundation for agentic AI at scale, by 2027, enterprises expect to deploy an average of 1,661 AI agents—a 38% increase. At that rate, tech leaders are tasked with managing hundreds of thousands of autonomous decisions daily. And manual governance can't keep up with that math.2 Additionally, according to the IBM Institute for Business Value, Enterprise 2030 study, AI is changing what companies do and how they do it.3 Closing that gap in scale requires an IT foundation that can run and optimize itself while teams focus on innovation.

These newly announced capabilities utilize AI agents to build automation directly into IBM Power across operations, security, and application development so clients can innovate with AI while prioritizing control and resilience. Power Autonomous Operations automates running and optimizing systems, with an embedded agent that lets teams manage Power through simple chat-style prompts. IBM Bob Premium Package for i makes IBM i development accessible to a broad range of engineers, expanding who can build and modernize their applications on the platform.

"Enterprises should not need to choose between moving at the speed of AI and keeping their systems stable and secure," said Hillery Hunter, General Manager for IBM Power and CTO, IBM Infrastructure. "We're making Power increasingly self-operating, so the routine work of helping to keep systems available, optimized, and secured can happen autonomously, and our clients' teams can spend their time on innovation instead of upkeep. That's how a business scales AI with control and resilience."

IBM Power S1112: Extending the Capabilities of Power Servers

As enterprises push AI workloads beyond the data center, the IBM Power S1112 is a new one-socket Power11 system built for compact on-prem deployment. The S1112 runs AI workloads locally using Power11 on-chip Matrix Math Acceleration (MMA) for faster inferencing. Power S1112 offers 2x better core performance versus Power S9144 and 3x better core performance versus Power S8145  — with up to 69% greater energy efficiency than the S9146.

To provide clients with the right level of support for this new system, IBM Technology Lifecycle Services is introducing IBM Power Expert Care Premium Essentials, a new incident-focused support tier available exclusively for the Power S1112. Premium Essentials delivers priority access to IBM experts, accelerated response, and intelligent support automation.

IBM Power Autonomous Operations: Managing Infrastructure Through Conversation

IBM Power Autonomous Operations resolves capacity constraint issues up to 15x faster than manual intervention7. Today's enterprise systems can seem to demand constant attention, but manual operations management can make it difficult to manage. IBM Power Autonomous Operations redefines this model by automating and optimizing day-to-day operations across the IBM Power environment. An embedded AI agent that enables natural, conversational interaction can help teams to manage, tune, and streamline their environments without relying on deep domain expertise for every task. The result is a resilient, self-optimizing infrastructure architected to reduce operational burden while accelerating performance and uptime.

IBM Bob Premium Package for i: Making IBM i Development Accessible to More Engineers

IBM i is a fully integrated operating system that remains a vital part of the core business of many companies across major industries, yet modernizing IBM i applications has historically required specialized skills for RPG applications. To help address this challenge, IBM Bob is an AI-powered development assistant that offers an agentic SDLC experience for enterprise developers.

IBM Bob Premium Package for i is engineered to provide built-in support for IBM i conventions and patterns across the full development lifecycle, to help engineers make changes faster, onboard sooner, and evolve applications while prioritizing team capacity along the way. From understanding complex code to moving modernization and AI projects forward, IBM Bob can expand the pool of developers who improve the IBM i applications that organizations depend on every day. Early adopters are already seeing results: Heartland Co-Op estimates 60% faster time for new-to-platform developers to understand complex applications.8

Client Momentum

Clients and partners are already running IBM Power on premises and in the cloud, drawn by its performance, resilience, and hybrid flexibility:

"For a business like ours, reliability and simplicity matter because our customers depend on us every day. IBM Power and IBM i have consistently delivered the stability and security we need to support our operations with confidence. And that continues with the introduction of IBM Bob and the IBM Power S1112. What excites me most about the new Power S1112 is the ability to do more with less through increased capacity, energy efficiency, and the growing focus IBM has on automation, making systems easier to manage for small and midsized businesses. We are also excited about how IBM Bob for IBM i can help our team accelerate modernization by quickly interpreting older RPG code, tracing field logic, generating documentation, and making decades of system knowledge easier to understand and act on. Together, IBM Power, IBM i, and IBM Bob give us a forward-looking foundation to modernize with confidence while continuing to deliver the reliability our business depends on." Jasmine Kaczmarek, vice president of technology, M.R. Williams.

"What I noticed about IBM Bob almost immediately was the level of detail provided as compared to other AIs. I like using AI to build and execute plans for specific projects. Given the exact same prompt, Bob's planning was always 10-fold more detailed than other AIs. More specifics, more details, and provided a better understanding of the steps through the project from beginning to end." Bob Richardson, ERP Support Analyst, Wynne Systems, Inc.

"The new IBM Power S1112 provides us with the flexibility to expand beyond traditional workloads and explore new AI opportunities by running Linux partitions alongside our IBM i environment," said Andy Buchholtz, Owner, Innovative Software Solutions. "Combining that flexibility with the security, reliability, and resilience we trust from the IBM Power platform gives us confidence as we continue to innovate and modernize our business."

"We're no longer reacting to weather. We're prepared for it," said Chad Simpson, CIO, City Home. "Our infrastructure is built to keep the business running, no matter what. We've honed our process to perform role swaps every quarter, and this capability gives us great confidence in our business continuity posture. It's a powerful thing, and it's all thanks to IBM Cloud and Power Virtual Server."

Availability

IBM Power S1112 is expected to be generally available on July 24, 2026, IBM Power Autonomous Operations is expected to be generally available on September 23, 2026, and IBM Bob Premium Package for i was made generally available on June 24, 2026. To learn more, visit ibm.com/power.

Statements regarding IBM's future direction and intent are subject to change or withdrawal without notice and represent goals and objectives only.

About IBM

IBM is a leading provider of global hybrid cloud and AI, and consulting expertise. We help clients in more than 175 countries capitalize on insights from their data, streamline business processes, reduce costs and gain the competitive edge in their industries. Thousands of government and corporate entities in critical infrastructure areas such as financial services, telecommunications and healthcare rely on IBM's hybrid cloud platform and Red Hat OpenShift to affect their digital transformations quickly, efficiently and securely. IBM's breakthrough innovations in AI, quantum computing, industry-specific cloud solutions and consulting deliver open and flexible options to our clients. All of this is backed by IBM's long-standing commitment to trust, transparency, responsibility, inclusivity and service.

Additional Sources

Power S1112 and autonomous IT capabilities blog IBM Power S1112 product page  IBM Institute for Business Value Enterprise 2030 study  Media contact:

Sarah Fraser
IBM Infrastructure Communications
[email protected]

1 Disclaimer 1: The performance and capacity management efficiency claim is based on IBM internal testing conducted in a controlled, representative IBM Power infrastructure environment consisting of eleven IBM Power systems. Capacity thresholds and alerting policies were preconfigured prior to test execution. Under this configuration, the manual operational process entailed—navigating to the performance dashboard for each system, exporting performance data to CSV/XLS format, reviewing and analyzing the data to identify required capacity adjustments, and implementing the changes—required on average 52.59 minutes to detect and resolve capacity‑related conditions across the eleven systems. In a comparable scenario, IBM Power Autonomous Operations, which includes alert ingestion and AI-based, agent-driven diagnostic analysis producing recommended and remedial actions with human-in-the-loop approval to remediate, completed the same process in on average 3.33 minutes.
2 https://www.ibm.com/thought-leadership/institute-business-value/en-us/c-suite-study/cxo
3 https://www.ibm.com/thought-leadership/institute-business-value/en-us/report/enterprise-2030
4 Based on published CPW results comparing Power S1112/4 core to IBM Power S914/4 core. Valid as of 7/14/2026 and available at: https://www.ibm.com/downloads/documents/us-en/10c31775c5d40fed
5 Based on published CPW results comparing Power S1112/4 core to IBM Power S814/4 core. Valid as of 7/14/2026 and available at: https://www.ibm.com/downloads/documents/us-en/10c31775c5d40fed
6 Based on system capability of Power S1112/10c performance 291,300E CPW (extrapolated from 116,500 CPW for 4-cores) @ 540E Watts (539 Performance/Watt) compared to Power S914/8cperformance of 122,500 CPW @ 383 Watts (319 Performance/Watt); 539 / 319 = 1.69 more Performance/Watt
7 Disclaimer 1: The performance and capacity management efficiency claim is based on IBM internal testing conducted in a controlled, representative IBM Power infrastructure environment consisting of eleven IBM Power systems. Capacity thresholds and alerting policies were preconfigured prior to test execution. Under this configuration, the manual operational process entailed—navigating to the performance dashboard for each system, exporting performance data to CSV/XLS format, reviewing and analyzing the data to identify required capacity adjustments, and implementing the changes—required on average 52.59 minutes to detect and resolve capacity‑related conditions across the eleven systems. In a comparable scenario, IBM Power Autonomous Operations, which includes alert ingestion and AI-based, agent-driven diagnostic analysis producing recommended and remedial actions with human-in-the-loop approval to remediate, completed the same process in on average 3.33 minutes.
8 Heartland Co-op Modernizes Grain Operations with IBM i and IBM Bob

SOURCE IBM

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CEO Arvind Krishna wrote a letter to shareholders eight days before the company was supposed to release its quarterly earnings. Mandel NGAN / AFP via Getty Images IBM is on pace to have its worst day ever on the stock market after saying it misread the AI spending boom.

On Tuesday, eight days before the company's scheduled earnings call, CEO Arvind Krishna released a letter to shareholders that detailed a quarterly "performance shortfall," including slimmer-than-expected revenue.

"While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," he wrote. "In addition, clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter."

The warning quickly revived talk of a SaaSpocalypse — the fear that AI will erode the value of some traditional software companies. For months, investors have worried that businesses will need fewer software subscriptions as AI agents automate and build custom tools.

IBM is not a pure software-as-a-service company, and Krishna did not say AI had made its products obsolete. Instead, he said customers redirected spending toward increasingly expensive servers, storage, and memory — leaving less money available for some of IBM's software and consulting services.

The shortfall is still touching a nerve among industry bigwigs. Companies are pouring money into the infrastructure needed to power AI, while investors increasingly question how much of that spending will ultimately flow to established software providers.

Here is what smart voices in business and tech are saying about the early announcement's impact on the economy:

Chamath Palihapitiya — CEO at 8090 and Social Capital

8090 CEO Chamath Palihapitiya.  Jesse Grant/The Hollywood Reporter via Getty Images Chamath Palihapitiya said IBM's stumble reflects a much bigger problem facing the AI industry: Companies selling intelligence are making enormous sums, but it's unclear whether their customers can turn those costs into profits of their own.

"The downstream ecosystem has to make money as well," Palihapitiya said Tuesday when asked about Krishna's letter on CNBC. "And then, the ultimate buyer of these tokens also has to make money."

He stopped short of blaming IBM's problems on its pivot to AI and cloud computing, and praised Krishna for repositioning the company.

Palihapitiya was less forgiving of IBM's suggestion that rapidly evolving cybersecurity concerns distracted some customers during the quarter.

He said AI companies and their investors have repeatedly swung between extremes: describing the technology as an all-powerful breakthrough when raising money, then warning that it poses an existential threat when seeking regulation.

Jacob Bourne — Analyst at EMARKETERBourne told Business Insider in an email that IBM was hit with a "triple whammy."

He said the AI buildout is directing corporate spending toward hardware rather than software and services. At the same time, investors are punishing legacy companies that appear to be falling behind. Finally, AI-native challengers such as Anthropic are putting additional pressure on traditional software business models.

"We can expect more quarters like this one, but I think it's a disruption story, not necessarily an extinction one for legacy software companies," he wrote. "Spending patterns will shift from the present focus, and the vendors that adapt their products to the changing market will stay competitive."

Nicholas Mugalli — CEO and Principal at World Trade Securities

An IBM logo on a screen.  NYSE Mugalli wrote on X that he believes IBM is the first major casualty of a broader shift in enterprise spending.

He argued that IBM's miss shows the limits of corporate budgets. As hardware became scarcer and more expensive, executives prioritized servers, storage, and memory over software deals that could be delayed.

"This is the SaaS reckoning arriving exactly the way it would," Mugalli wrote, "not with cancellations, but with deprioritization. "

Mugalli predicted IBM would not be the last enterprise software company to feel that pressure, pointing specifically to Palantir and ServiceNow.

Dan Niles — founder of Niles Investment ManagementNiles wrote on X that IBM's warning was an example of the AI "speed bump" he has been expecting.

He also said that customers redirected spending toward AI late in the quarter, cutting into IBM's mainframe and related software business. He said that much of that revenue is supposed to be recurring, making the shortfall more concerning.

"Given software is a back-end loaded business, I doubt this is the last casualty," he wrote.

Read next

Ben Shimkus You're currently following this author! Want to unfollow? Unsubscribe via the link in your email.

Ben Shimkus is a reporter for the Business News desk. He writes about cars, transportation, retail, and jobs. Ben's reporting has appeared in Rolling Stone, The Verge, Automotive News, USA Today, AutoBody News, LGBTQ Nation, TopSpeed, and Out Magazine. He's also held staff writing positions at The U.S. Sun and the Daily Mail. He graduated from NYU with a Master's in journalism in 2024. Email Ben at [email protected] or message him privately on Signal at bshimkus.41. 

IBM AI

, /PRNewswire/ --

IBM Investors –

This morning we are releasing selected preliminary second-quarter 2026 financial results. We are still working to close our financial reporting for the quarter and our final results could be slightly different.

For the second quarter:

Revenue:

Revenue of $17.2 billion, up 1 percent Software revenue up 5 percent Consulting revenue flat, up 1 percent at constant currency Infrastructure revenue down 7 percent Profit:

Gross Profit Margin: GAAP: 57.7 percent, down 100 basis points; Operating (Non-GAAP): 59.4 percent, down 70 basis points Pre-Tax Income Margin: GAAP: 14.4 percent, down 90 basis points; Operating (Non-GAAP): 19.2 percent, up 30 basis points Cash Flow:

Year to date, net cash from operating activities of $7.8 billion; free cash flow of $4.8 billion EPS:

Diluted Earnings Per Share: GAAP: $2.27, down 2 percent; Operating (Non-GAAP): $2.93, up 5 percent I want to spend some time explaining what we experienced in the quarter that led to the Software and Infrastructure performance shortfall you see above.

When we discussed our expectations with you in April, we noted that we would be wrapping on the launch of z17 in the second quarter. Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter. What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack, primarily in Transaction Processing. In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. This dynamic impacted client buying patterns. While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization. In addition, clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter.

These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.

These are not excuses, but they are realities. Our job is to help our clients through uncertainty, to find paths forward to grow their businesses no matter what is happening in the external environment.

While our second-quarter results are disappointing, our performance in many areas showed strength, reinforcing the conviction we have in our portfolio and strategy.

Within Software, Red Hat revenue growth accelerated sequentially to 11 percent Recent acquisitions including both HashiCorp and Confluent delivered strong performance With clients prioritizing infrastructure investments, Distributed Infrastructure had its best performance in reported history, up 37 percent with strong growth in Power and Storage, and a backlog of approximately $500 million exiting the quarter Despite challenges this quarter, z17 remains at nearly 130 percent program-to-program, well ahead of z16 which was our strongest program on record, with clients representing 85% of installed MIPs maintaining or growing capacity Continued growth in Consulting signings led by strong GenAI contribution Productivity initiatives contributed to continued operating (non-GAAP) PTI Margin expansion in the quarter Importantly, we continue to innovate at speed and scale. After the introduction of Mythos, our teams across IBM and Red Hat quickly mobilized to take advantage of an unprecedented opportunity, launching Lightwell. Lightwell is a $5 billion commitment backed by new frontier AI capabilities and a global force of more than 20,000 engineers creating a trusted enterprise clearinghouse to address open source software vulnerabilities. Early adopters include organizations like Bank of America, BNY, Citi, Goldman Sachs, JPMorganChase, Mastercard, Morgan Stanley, Royal Bank of Canada, State Street, Visa, Wells Fargo and more. General availability of Lightwell was announced on July 8.

Finally, quantum computing is no longer decades away, it is upon us, and we are investing aggressively. Recently, with the U.S. Department of Commerce, we announced a letter of intent to build Anderon, the world's first pure-play quantum wafer foundry supported by $1 billion in CHIPS incentives provided by the DoC and a $1 billion cash contribution by IBM. Shortly after that, we disclosed plans to invest more than $10 billion in quantum over the next five years, spanning R&D, capex, manufacturing scaling, M&A and ecosystem expansion. We remain on track to deliver the first large-scale fault-tolerant quantum computer by 2029.

While performance in the quarter was below our expectations, we have conviction in the strength of our portfolio and the strategic transformation of our business. To remedy challenges this quarter, we are undertaking new initiatives and accelerating others, all to improve our results going forward. We will hold our regularly scheduled conference call with you all on July 22, 2026, at 5PM ET to go into deeper detail and discuss our full-year expectations.

Arvind Krishna
Chairman, President and Chief Executive Officer, IBM
(NYSE: IBM)

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this letter may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company's current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, the following: a downturn in economic environment and client spending budgets; a failure of the company's innovation initiatives; damage to the company's reputation; risks from investing in growth opportunities; failure of the company's intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; the company's ability to successfully manage acquisitions, alliances and divestitures, including integration challenges, failure to achieve objectives, the assumption or retention of liabilities and higher debt levels; fluctuations in financial results; impact of local legal, economic, political, health and other conditions; the company's failure to meet growth and productivity objectives; ineffective internal controls; the company's use of accounting estimates; impairment of the company's goodwill or amortizable intangible assets; the company's ability to attract and retain key employees and its reliance on critical skills; impacts of relationships with critical suppliers; product and service quality issues; the development and use of AI, including the company's increased  AI solutions and use of AI technologies; impacts of business with government clients; reliance on third party distribution channels and ecosystems; cybersecurity and data protection considerations; adverse effects related to climate change and other environmental matters; tax matters; legal proceedings and investigatory risks; the company's pension plans; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company's Form 10-Qs, Form 10-K and in the company's other filings with the U.S. Securities and Exchange Commission or in materials incorporated therein by reference.

Any forward-looking statement in this letter speaks only as of the date on which it is made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements.

Presentation of Information in this Letter

In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this letter the following non-GAAP information, which management believes provides useful information to investors:

adjusting for currency (i.e., at constant currency); presenting operating (non-GAAP) earnings per share amounts and related income statement items; free cash flow; net cash from operating activities excluding IBM Financing receivables. The rationale for management's use of these non-GAAP measures is included in Exhibit 99.2 in the Form 8-K that includes this letter and is being submitted today to the SEC.

Conference Call and Webcast

IBM's regular quarterly earnings conference call is scheduled for Wednesday, July 22, 2026 at 5:00 p.m. ET. The Webcast may be accessed via a link at https://www.ibm.com/investor/events/earnings-2q26. Presentation charts will be available shortly before the Webcast.

Selected Financial Information Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

Contact:

IBM
Sarah Meron, 347-891-1770
[email protected] 

Tim Davidson, 914-844-7847
[email protected] 

INTERNATIONAL BUSINESS MACHINES CORPORATION
U.S. GAAP TO OPERATING (Non-GAAP) RESULTS RECONCILIATION
(Unaudited; $ in millions except per share amounts)

Three Months Ended June 30, 2026

Continuing Operations

GAAP

Acquisition-

Related

Adjustments (1)

Retirement-

Related

Adjustments (2)

Operating

(Non-GAAP)

Gross profit

$         9,907

$              287

$                —

$        10,194

Gross profit margin

57.7

%

1.7

pts

—

pts

59.4

%

Pre-tax income from continuing operations

2,479

716

96

3,290

Pre-tax income margin from continuing operations

14.4

%

4.2

pts

0.6

pts

19.2

%

Diluted earnings per share: continuing operations

$           2.27

$             0.58

$             0.08

$           2.93

Three Months Ended June 30, 2025

Continuing Operations

GAAP

Acquisition-

Related

Adjustments (1)

Retirement-

Related

Adjustments (2)

Operating

(Non-GAAP)

Gross profit

$         9,977

$              225

$                —

$        10,202

Gross profit margin

58.8

%

1.3

pts

—

pts

60.1

%

Pre-tax income from continuing operations

2,597

575

25

3,197

Pre-tax income margin from continuing operations

15.3

%

3.4

pts

0.1

pts

18.8

%

Diluted earnings per share: continuing operations

$           2.31

$             0.47

$             0.02

$           2.80

(1)

Includes amortization of acquired intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable retention, restructuring and related expenses, tax charges related to acquisition integration, and pre-closing charges, such as financing costs.

(2)

Includes amortization of prior service costs, interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements and pension insolvency costs and other costs.

INTERNATIONAL BUSINESS MACHINES CORPORATION
GAAP OPERATING CASH FLOW TO FREE CASH FLOW RECONCILIATION
(Unaudited)

($ in millions)

Six Months Ended
June 30, 2026

Net cash provided by operating activities per GAAP

$                7,766

Less: change in IBM Financing receivables

2,264

Net cash from operating activities excl. IBM Financing receivables

5,503

Capital expenditures, net

(743)

Free cash flow

$                4,760

SOURCE IBM

At $292.59, International Business Machines (NYSE:IBM | IBM Price Prediction) is a Buy, echoing Jim Cramer’s call on Mad Money after a viewer asked for a verdict on the stock. Cramer called IBM inexpensive, praised CEO Arvind Krishna’s execution, and told viewers to buy some now and add on any panic dips.

IBM sits at the intersection of enterprise software, hybrid cloud, and mainframe infrastructure, with 96% of its software portfolio classified as enabling infrastructure, not applications. Big Blue has methodically become an AI infrastructure supplier for global corporations, and Krishna has spent years reshaping the portfolio for this moment. The stock has rebounded from early-year lows but still trails the broader market, which is the setup Cramer is pointing at.

Why the Bulls See a Cheap AI Infrastructure Compounder IBM’s Q1 2026 results strengthen the bull case. Non-GAAP EPS came in at $1.91 versus $1.81 expected, the fourth straight quarterly beat, on revenue of $15.917B, up 9.5% year over year. Software revenue rose 11.3% with Red Hat up 13% and Data up 19%, while IBM Z mainframe revenue surged 51% and infrastructure segment margin expanded from 8.6% to 15.8%.

Krishna is monetizing AI at the silicon layer. A fully populated mainframe can now run “about 450 billion inferences [operations] a day”, letting banks apply fraud models to every transaction instead of a 10% sample. The generative AI book of business finished 2025 above $12.5B inception-to-date. Meanwhile, management maintained guidance for more than 5% constant currency revenue growth and roughly $1 billion of incremental YoY free cash flow in 2026. At a forward P/E of 23, that is a growth business trading like a legacy one.

Why the Bears Say the Rerating Has Already Happened IBM traded as low as $212.34 in the past year and now sits near $292.94 against a 52-week high of $332.46. Consulting, roughly a third of revenue, grew just 1% in constant currency, a soft spot bears argue will worsen as clients redirect budgets toward hyperscaler-native AI stacks.

Leverage is climbing. Total debt sits at $66.4 billion after the acquisition of data-streaming platform Confluent, while cash, restricted cash, and marketable securities fell to $11.8 billion from $14.5 billion. Free cash flow did not crack in Q1. It rose to $2.2 billion, up $0.3 billion year over year, even as IBM absorbed acquisition-related spending. The bear case is balance-sheet pressure, with cash down from year-end and debt elevated after another large software deal. Composite sentiment has slid 16.59 points over seven days, and Reddit discussion has cooled from bullish readings of 65 in late June to a bearish range of 36 to 42 in early July, with one r/stocks thread framing IBM as a “forgotten” tech name.

Why Patience Has a Real Case Too The Wall Street consensus analyst target sits at $294.57, essentially where IBM stock already trades. Q2 results land soon. Polymarket assigns a 90% probability of an earnings beat but only a 48.5% probability of software revenue clearing $8.2B, leaving room for a mixed earnings report that stalls the stock.

Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and IBM didn't make the cut. Grab the names FREE today.

Patient investors can watch three things: software acceleration toward the 10% plus full-year target, whether consulting inflects above 1% constant currency, and Confluent integration progress.

What the Numbers Say About the Setup IBM trades at $292.72 against an average analyst target of $294.57, implied upside of roughly 1.6%, across 23 analysts. The ratings skew bullish: 3 Strong Buy, 12 Buy, 7 Hold, 0 Sell, and 1 Strong Sell.

Valuation is 25 trailing and 23 forward, with a 2.28% dividend yield resting on 31 consecutive years of increases. IBM is down 1.64% year to date and up 2.62% over one year, while the S&P 500 is up 10.71% year to date and 20.63% over one year.

Why the Bull Case Holds at This Price Trading above $290, the bull case leans on three catalysts over the next 12 months. Q2 results later this month are the near-term trigger, with prediction markets pricing a 90% probability of a beat. Behind it sits a software segment that management expects to grow above 10% for the full year, and a mainframe cycle where Z17 hardware placement value ran more than $1 billion ahead of Z16’s first year. Together, those catalysts give IBM two ways to rerate: stronger earnings and a higher multiple.

Buying a business growing revenue 9.5% and free cash flow 13% at a forward multiple of 23 leaves margin for error that hyperscalers do not offer. Krishna is executing on a portfolio he built for this moment, telling analysts “this is a tailwind because of the model that we picked”. The thesis breaks if software growth stalls below 8%, consulting turns negative, or the Confluent integration slips.

Cramer’s framing captures it vividly: this is a high-quality operator being priced like a legacy laggard, and the market has not caught up.

Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and IBM didn't make the cut. Grab the names FREE today.

Contact [email protected] for any questions or corrections.

Jim Cramer spent his July 6, 2026 Stop Trading segment pointing away from the obvious AI trade. While traders chase every hyperscaler capex beneficiary and GPU adjacency they can find, he told viewers to “check, without the cauldron of the data center, [they] should be looking at IBM.” His pitch leaned on a fresh Bank of America upgrade and a valuation that, in a market where AI names routinely trade north of 40x forward earnings, looks almost quaint.

IBM (NYSE:IBM | IBM Price Prediction) is the trade he wants you to make while the rest of the market is busy elsewhere.

The Cramer pitch, in his own words Cramer’s setup was direct. “Bank of America raising price target, raising earnings per share. It’s got some of course AI. But it really is this great computer company,” he said, before landing on the number that matters. “And it sells at 22 times next year’s earnings. I think this one works.” He also acknowledged the elephant. “I know it got hit very badly when it reported, but I think it’s going to be a good, good idea.”

IBM printed a clean beat on April 22, then sold off anyway. Shares closed the filing day at $257.80, dropped roughly 10% within a week, then clawed back to $299.68 by Monday morning. BofA is now at $330 (raised from $315), citing software strength, Confluent synergies, and IBM’s dividend record. The forward P/E per Alpha Vantage is 23x, close enough to Cramer’s 22 to call it a match.

What’s actually inside the “boring” AI story The AI part of IBM’s business is bigger than casual observers realize. The generative AI book of business had crossed $12.5 billion inception-to-date by year-end, with roughly four-fifths in Consulting and one-fifth in Software, and it has been accelerating from $7.5 billion in Q2 2025 and $9.5 billion in Q3 2025. That is real money attached to real workloads.

Q1 2026 gave the thesis teeth. Revenue of $15.917 billion, up 9.46% year over year, beat by 1.70%. Non-GAAP EPS of $1.91 versus $1.81 consensus made it the fourth consecutive EPS beat. Software grew 11.3% with Red Hat up 13% and Data up 19%. Infrastructure was the shocker. IBM Z mainframe revenue rose 51% year over year and segment margin expanding to 15.8% from 8.6%.

Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and IBM didn't make the cut. Grab the names FREE today.

Arvind Krishna claimed on the call that IBM’s fully populated Z can now handle “about 450 billion inferences a day”, which is why banks are running fraud models directly on the transaction rail instead of shipping data out.

Then there is the ballast. IBM raised the dividend to $1.69 per share, the 31st consecutive annual increase, and the company has paid a quarterly dividend every year since 1916. That income floor does not exist in the data-center-darling universe. You can verify the Q1 numbers in the Q1 2026 8-K exhibit filed with the SEC.

Pressure-testing the 22x trade Is 22x forward earnings actually cheap for what IBM does, or is it priced correctly for a company that grew Consulting only 4% in the quarter and carries elevated debt after Confluent? Free cash flow guidance calls for an approximately $1 billion year-over-year increase in 2026. Return on equity sits at 35.8%. Beta is 0.675, so you are getting AI exposure with less whip than the rest of the complex.

The bearish read has weight. Consulting is the largest slice of that $12.5 billion AI book, and consulting revenue growing 4% while the backlog is 30% GenAI raises a fair question about whether AI is expanding the pie or eating older services. Reddit conversation in June kept surfacing IBM in “forgotten tech stocks” threads, which is either the contrarian’s dream or the market telling you something.

Cramer’s call is coherent. A 2.25% dividend yield, a forward multiple in the low 20s, a real AI book compounding fast, and a mainframe cycle that will not quit. Whether that trade-off works depends on whether you are trying to win the next quarter or the next five years.

Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and IBM didn't make the cut. Grab the names FREE today.

Contact [email protected] for any questions or corrections.

Key Takeaways IBM lagged its industry over three months amid concerns tied to AI-led COBOL modernization.Anthropic's Claude Code could pressure IBM's legacy modernization services and consulting demand.Hybrid cloud, watsonx, HashiCorp and rising estimates may support IBM's long-term growth. International Business Machines Corporation (IBM - Free Report) has jumped 15.4% over the past three months, underperforming the industry’s growth of 127.3%, largely due to macroeconomic challenges and a sudden development in the artificial intelligence (AI) domain that threatens its core legacy businesses. The stock has, however, outperformed peers like Microsoft Corporation (MSFT - Free Report) and Amazon.com, Inc. (AMZN - Free Report) . While Microsoft gained 2.9%, Amazon has rallied 15.2% over this period.

Three-Month IBM Stock Price Performance

Image Source: Zacks Investment Research

What Plagues IBM?IBM's recent weakness largely stemmed from AI startup Anthropic's announcement that its Claude Code tool is capable of modernizing legacy COBOL applications — a programming language that underpins a significant portion of IBM's mainframe ecosystem. The tool promises to automate labor-intensive tasks such as code analysis, documentation, refactoring and security assessment, potentially reducing enterprises' reliance on legacy modernization specialists like IBM.

IBM has long been the dominant player in the mainframe market, generating recurring revenues not only from its hardware business but also from consulting and modernization services for mission-critical COBOL-based applications. The complexity of these legacy environments has historically created a strong competitive moat, as enterprises have been reluctant to replace or rewrite COBOL systems due to the high costs, operational risks and limited availability of skilled developers.

However, AI-powered code modernization tools could begin to narrow this advantage. COBOL continues to power critical workloads across financial institutions, airlines, retailers and government agencies worldwide. If Claude Code significantly lowers the cost, time and complexity associated with understanding, refactoring and migrating legacy applications, enterprises may increasingly pursue modernization initiatives with fewer specialized consulting resources.

Such a shift could weigh on IBM's Consulting business by reducing demand for labor-intensive legacy modernization projects and putting pressure on pricing in an area that has historically generated attractive margins. While the long-term impact remains uncertain, Anthropic's announcement has introduced a potential competitive overhang for one of IBM's established revenue streams, prompting investors to reassess the company's AI-era growth prospects.

Competitive Pressures Add to IBM WoesIBM is facing competition from Amazon Web Services and Microsoft Azure. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes. Weaknesses in its traditional business and foreign exchange volatility remain significant concerns.

IBM’s frequent acquisitions have also escalated integration risks. Buyouts have negatively impacted the company’s balance sheet, resulting in high levels of goodwill and net intangible assets. Moreover, a highly leveraged balance sheet has been troubling IBM over time.

Image Source: Zacks Investment Research

The TailwindsDespite the setbacks, IBM is poised to benefit from healthy demand trends for hybrid cloud and AI, which drive the Software and Consulting segments. The company’s growth is expected to be aided by analytics, cloud computing and security in the long run. A combination of a better business mix, improving operating leverage through productivity gains and increased investment in growth opportunities will likely boost profitability.

With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which have led firms to undertake a cloud-agnostic and interoperable approach to highly secure multi-cloud management, translating into a healthy demand for IBM hybrid cloud solutions.

The buyout of HashiCorp has significantly augmented IBM’s capabilities to assist enterprises in managing complex cloud environments. HashiCorp’s tool sets complement IBM RedHat’s portfolio, bringing additional functionalities for cloud infrastructure management and bolstering its hybrid multi-cloud approach. IBM’s watsonx platform is likely to be the core technology platform for its AI capabilities. watsonx delivers the value of foundational models to the enterprise, enabling them to be more productive.

Estimate Revision TrendIBM is currently witnessing an uptrend in estimate revisions. Earnings estimates for IBM for 2026 have moved up 4.6% to $12.40 over the past year, while the same for 2027 has increased 7.4% to $13.43. The positive estimate revision portrays bullish sentiments about the stock’s growth potential.

Image Source: Zacks Investment Research

End NoteIBM has invested heavily in its own AI capabilities, including watsonx, and could incorporate generative AI into its consulting workflows to improve efficiency rather than lose relevance. A strong emphasis on quantum computing and hybrid cloud is driving value for customers. With improving earnings estimates, the stock is witnessing a positive investor perception.

However, IBM’s growth is dented by high operating costs and stiff competition that reduce its profitability. The company faces a potent threat from Anthropic and needs to fine-tune its business model to remain competitive. With a Zacks Rank #3 (Hold), IBM appears to be treading a middle-of-the-road path, and new investors may be better off trading with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visitors walk past IBM logo at the Mobile World Congress (MWC) in Barcelona, Spain, March 3, 2026. REUTERS/Nacho Doce Purchase Licensing Rights, opens new tab

June 25 (Reuters) - IBM (IBM.N), opens new tab on Thursday unveiled what it said was the world's first technology capable of producing chips smaller than ​one nanometer, as tech companies race to build semiconductors that ‌can handle increasingly demanding AI workloads.

Shares of the Armonk, New York-based company rose over 6% in premarket trading. They have fallen about 11% so far this ​year.

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The announcement comes at a time when chipmakers are searching for ​ways to maintain the decades-long trend of cramming more computing ⁠power into smaller spaces, a phenomenon known as Moore's Law.

The new ​chip technology, which bolsters IBM's position to compete with contract chipmakers TSMC (2330.TW), opens new tab ​and Intel (INTC.O), opens new tab, has a transistor architecture of 0.7 nanometers, or 7 angstroms.

Last week, Intel said the new generation of its 18A manufacturing process, which makes 1.8 nanometer ​chips, moved into risk production, the testing phase before commercial manufacturing.

IBM said the ​0.7-nanometer chip packs nearly 100 billion transistors onto a fingernail-sized surface, about twice the ‌density ⁠of its 2-nanometer chip unveiled in 2021, delivering up to 50% higher performance or 70% greater energy efficiency.

To get there, IBM developed a new transistor design called "nanostack". Instead of laying transistors flat, the design stacks them ​on top of each ​other in ⁠three dimensions, fitting more into the same volume of space.

"With our new nanostack architecture, we’re not just making ​smaller transistors, we’re reinventing how chips are built to ​deliver dramatically ⁠more power and energy efficiency,” director of IBM Research Jay Gambetta said.

IBM says production could begin within five years. The company has previously licensed ⁠chip technologies ​to Samsung (005930.KS), opens new tab and Japan's Rapidus. It has ​not announced a manufacturing partner for this technology.

Reporting by Anhata Rooprai in Bengaluru and Stephen ​Nellis in San Francisco; Editing by Varun H K and Devika Syamnath

Our Standards: The Thomson Reuters Trust Principles., opens new tab

Shares of IBM climbed nearly 5% in premarket trading on Tuesday after JPMorgan upgraded the technology company, citing increasing confidence in its software business and potential benefits from growing artificial intelligence adoption.

JPMorgan analyst Brian Essex upgraded IBM to Overweight from Neutral and raised his price target to $291 from $270.

The analyst said expectations for software acceleration in the second half of 2026 have strengthened the firm's outlook on the stock.

The upgrade comes as IBM continues a multiyear transformation from a hardware and services provider into a software-led platform focused on hybrid cloud and artificial intelligence technologies.

JPMorgan highlighted several growth drivers, including momentum from Red Hat and OpenShift migration activities.

The firm pointed to OpenShift's role in supporting the adoption of IBM's AI-driven container platform among enterprises.

The analysts also noted accelerating automation demand following IBM's acquisition of HashiCorp, which management said is receiving increasing support from senior corporate executives.

IBM's software segment has become the primary earnings engine for the company.

According to JPMorgan, software now accounts for roughly 45% of IBM's revenue but generates approximately two-thirds of consolidated profit.

"We view the continued shift toward software as positive considering the higher-margin, ratable nature of software with better cash conversion and a higher-quality earnings stream that supports a higher multiple than the hardware and services businesses," the analysts said.

JPMorgan also said that if IBM becomes a significant beneficiary of rising AI demand, the stock could see further valuation expansion.

Separately, Morgan Stanley raised its price target on IBM to $267 from $225 while maintaining an Equal Weight rating.

The firm noted that recent earnings reports from Dell and Hewlett Packard Enterprise demonstrated that enterprise server demand has remained stronger than expected despite higher prices driven by compute shortages, hardware refresh cycles and growing AI infrastructure requirements.

Morgan Stanley added that Wall Street expectations for 2026 and 2027 "look too low" and increased its earnings-per-share estimates by 5% to 6% for companies with exposure to computing demand.

IBM may also benefit from fresh support for quantum computing from the US government.

Chief Executive Officer Arvind Krishna attended the White House on Monday as President Donald Trump signed two executive orders designed to accelerate domestic quantum computing development and strengthen cybersecurity protections against quantum-powered threats.

The first executive order directs the development of "the first-ever quantum computer powerful enough for scientific research," with the goal of locating the system in a national laboratory by 2028.

The second order accelerates the federal government's transition to post-quantum cryptography by 2031.

"When President Trump published a letter to me in early 2025, he prioritized quantum as a key industry for America to lead the world alongside AI and nuclear energy," said Michael Kratsios, the president's top advisor on science and technology policy.

Industry participants are working toward achieving fault tolerance by the end of the decade, a milestone that would allow quantum computers to operate reliably even when individual components experience failures or disruptions.

The latest policy initiatives add another potential growth catalyst for IBM as it expands its presence in artificial intelligence, hybrid cloud software, and next-generation computing technologies.