IBM stock plunges after earnings warning and mainframe shortfall

IBM’s stock fell 25% to $217.07 after the company warned that second-quarter results missed expectations, turning a routine earnings update into a sharp test of investor faith in its AI narrative. The drop was the stock’s worst day on record and came after IBM disclosed preliminary revenue of $17.2 billion, up just 1%, with adjusted earnings per share of $2.93.

The miss was concentrated in the parts of the business that still carry heavy symbolic weight. Chief executive Arvind Krishna said the quarter was hurt by weak Z mainframe performance and the related transaction-processing software stack, while some large deals failed to close on time. He also said a late-June shift in customer capital spending moved money toward servers, storage and memory purchases ahead of expected price increases, a sign that enterprise buyers were reprioritizing budgets rather than broadening them.

The numbers looked worse against Wall Street’s expectations. Analysts had been looking for adjusted EPS of $3.01 and revenue of $17.86 billion. IBM’s preliminary figures came in below both, and the company said GAAP diluted EPS was $2.27, down 2% from a year earlier. Software revenue rose 5%, consulting was flat and infrastructure fell 7%, exposing how uneven IBM’s mix remains even as it pushes higher-margin software and AI-related products.

The selloff also revived a harder question about credibility. IBM spent much of the past year presenting itself as a beneficiary of enterprise AI spending, and in April it posted first-quarter revenue of $15.9 billion, up 9%, while reaffirming expectations for more than 5% constant-currency revenue growth and about $1 billion more free cash flow in 2026. It also said Red Hat growth accelerated to 11% and distributed infrastructure rose 37%, data that had helped support the case that the turnaround was working.

Instead, Tuesday’s warning suggested that some of the market’s AI enthusiasm may be bypassing legacy software vendors. Investors have increasingly focused on spending tied to AI tokens, data centers and the hardware needed to support them, while conventional software and mainframe businesses face tougher comparisons and tighter scrutiny. IBM’s weaker quarter, and the speed of the stock’s collapse, showed how quickly confidence can evaporate when a company built on decades-old enterprise relationships misses on the very products that are supposed to finance its next era.

IBM is scheduled to hold its quarterly earnings call on July 22 at 5:00 p.m. ET, a chance for Krishna and his team to explain whether the setback was a one-quarter disruption or a deeper warning for enterprise technology.