IBM cuts 2026 growth outlook after second-quarter miss

IBM reduced its 2026 revenue growth outlook on Wednesday after reporting second-quarter sales and adjusted earnings that missed analysts’ expectations compiled by LSEG. The shares gained about 1% in extended trading, according to CNBC, after the figures matched the preliminary results IBM had disclosed a week earlier.

The technology company reported adjusted earnings of $2.93 a share, below the $2.97 expected by analysts surveyed by LSEG. Revenue was $17.16 billion, compared with the $17.58 billion consensus estimate.

IBM said in a statement that revenue increased 1% from a year earlier. Net income was $2.17 billion, or $2.30 a share, compared with $2.19 billion, or $2.36 a share, in the same period last year. The company’s adjusted earnings figure strips out acquisition-related adjustments, a measure investors use to compare operating performance across periods.

Forecast trimmed after warning

IBM now expects 2026 revenue to rise 4% to 5% at constant currency, the company said. In April, management had projected growth of more than 5% on the same basis. Constant-currency growth removes the effect of exchange-rate movements, giving investors a view of how revenue changed before translation into dollars.

The company kept its forecast for a $1 billion increase in free cash flow for the year. Free cash flow is closely watched because it reflects cash generated after capital spending and can support dividends, buybacks, acquisitions or debt reduction.

Analysts had lowered their forecasts after IBM released preliminary second-quarter numbers last week. In a letter to investors at that time, Chief Executive Arvind Krishna said sales of Z mainframe computers and transaction processing software had fallen short of the company’s plan after customers accelerated purchases ahead of expected price increases. CNBC reported that IBM’s stock fell 25% after that warning, its largest one-day decline on record.

As of Wednesday’s close, IBM shares were down 30% for 2026, while the S&P 500 had risen about 10%, according to CNBC.

Software grows as mainframes decline

IBM’s software unit, its highest-margin segment, generated $7.76 billion in second-quarter revenue, up 5% from a year earlier, the company said. Consulting revenue was unchanged at $5.33 billion. Infrastructure revenue declined 7% to $3.84 billion, including a 42% drop in Z mainframe revenue.

IBM also highlighted several initiatives from the quarter. The company said it signed a letter of intent to build a U.S. quantum chip foundry. It also introduced Bob, an artificial intelligence coding tool that uses a mix of generative models and has been adopted by more than 80,000 IBM employees.

In its statement, IBM said it is using artificial intelligence to speed software development, improve sales and marketing effectiveness, and optimize its supply chain. The company said those efforts are intended to support margins, free cash flow and growth opportunities.

IBM executives were scheduled to discuss the results with analysts on a conference call at 5 p.m. ET.

This story draws on original reporting from CNBC.