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International Business Machines warned last week that its quarterly revenue had come up short as customers drained their budgets on artificial-intelligence hardware, leaving less room to invest in software. Now the company is cutting its outlook for the full year.
IBM said Wednesday that it expects constant-currency revenue growth in the range of 4% to 5% for 2026, below a prior forecast that called for growth of over 5%.
The company maintained its expectations for annual free cash flow to increase by about $1 billion relative to what was seen in 2025.
Evercore analyst Amit Daryanani wrote in a note following the release that the updated guidance is “better than feared.” He expected guidance to be revised lower to a “low/mid-single-digit range.”
While IBM shares bounced in Wednesday’s extended session immediately following the latest release, they recently turned south to be down about 1%.
“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,” CFO James Kavanaugh said in a statement.
“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.”
The company spent $1.6 billion on its dividend in the second quarter.
The outlook adjustment is the latest blow for a technology heavyweight that is trying to transition its business for the AI era. When delivering its profit warning last week, IBM pointed to recent challenges in its mainframe business.
IBM shares fell 25% in a single day last week after that warning, in what marked their largest one-day decline on record.
Read more: Is Microsoft’s stock set for a breakout? This analyst says a major inflection is in the cards.
IBM’s earnings report Wednesday afternoon showed second-quarter revenue of $17.2 billion, up 1% from a year before but below the $17.48 billion that analysts had been expecting prior to last week’s preliminary release. The company also reported $2.93 in adjusted earnings per share, up 5% from a year prior but below the $2.95 that analysts had been modeling before last week’s release.
Shares of IBM have lost about 30% on a year-to-date basis.
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Kavanaugh said on the earnings call that in the final weeks of June, IBM “saw a shift in client spending priorities,” whereby clients “redirected spending towards servers, storage, and memory purchases to secure supply constrained infrastructure ahead of expected price increases.”
As a result, he said that “tens of large deals failed to close on the timelines we expected, accounting for the majority of the shortfall.”
That was consistent with messaging given at the time of the profit warning.
“It comes down to execution. That is where we fell short in the second quarter,” IBM’s CEO Arvind Krishna said on the call. “We have engaged with clients on the transactions that slipped and have a clear understanding of what needs to change.”
