IBM Cuts Annual Revenue Growth Forecast as Customers Prioritize AI Infrastructure Spending
The company cited weaker mainframe and infrastructure sales as customers shifted spending toward artificial intelligence initiatives.
- IBM lowered its 2026 revenue growth forecast to 4%–5% on Wednesday, citing a sharp drop in demand for its mainframe systems. This adjustment follows a quarterly profit miss and an earnings warning issued last week.
- Mainframe sales plummeted 42% in the second quarter, dragging infrastructure revenue down 7% to $3.84 billion. The company flagged this weakness on July 14, sending shares down 25% in a single day.
- While high-margin software revenue rose 5% to $7.76 billion, total revenue grew only 1% to $17.16 billion, missing estimates of $17.58 billion. Adjusted earnings of $2.93 per share missed the $2.97 estimate.
- CFO Jim Kavanaugh said the company will accelerate cost-saving initiatives to generate an additional $1 billion in free cash flow this year. Executives also emphasized investment in AI-powered enterprise security.
- CFRA analyst Brooks Idlet noted that "for the broader software sector, this should be treated as a positive print," suggesting IBM's woes reflect specific hardware issues rather than wider industry decline.
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IBM has lowered its growth target for this year as corporate IT budgets are shifting toward data center equipment, such as AI servers and semiconductors. On the 22nd (local time), IBM announced that it had lowered its revenue growth forecast for the year from over 5% to 4–5%. Second-quarter revenue stood at $17.2 billion, a 1% increase from the same period last year, but fell short of market expectations. Net income was $2.17 billion.
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