IBM cuts yearly revenue growth forecast as customers prioritize AI spending

IBM has revised down its annual revenue growth forecast, signaling a significant shift in customer spending priorities toward artificial intelligence infrastructure. This adjustment follows a second-quarter performance where the company fell short of both profit and revenue expectations, largely due to decreased demand for its software and mainframe computers.

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faltered

CEO Arvind Krishna acknowledged that IBM "faltered" in adapting to these market changes, leading to "numerous large deals" slipping. This situation contributed to a substantial drop in the company's stock price. The revised forecast now anticipates 2026 revenue growth to be between 4% and 5%, a decrease from the previously projected rate of over 5% growth. This new outlook falls below the average analyst estimate.

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numerous large deals

The company's finance chief, James Kavanaugh, noted that IBM's Z mainframe revenue slumped by 42% in the second quarter, impacting overall infrastructure revenue. He explained that the mainframe segment and its associated transaction processing software affected IBM's growth by over five percentage points in the quarter, exceeding initial expectations of a one-to-two-point impact.

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That mainframe stack of hardware and transaction processing software impacted IBM's growth by over five points in the quarter.

Despite the challenges in mainframe and software sales, IBM executives are working to reassure shareholders. They emphasize that customers are prioritizing AI spending but are not abandoning mainframes in the long term. Software revenue saw a modest 5% increase, though it still missed analyst estimates. The company reported a slight dip in net profit compared to the previous year, with adjusted earnings per share also falling just short of expectations.

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We were only expecting about a point or two of an impact.