IBM FY2026 Q2 Lowered

International Business Machines Corporation earnings call

Jul 22, 2026 · 13:00 ET Arvind KrishnaJim KavanaughOlympia McNerney earningscall_biz

Buzzberg read

Z17 best refresh cycle at 130% program to program

IBM reported weaker-than-expected Q2 results with only 1% total revenue growth, missing prior expectations due to large enterprise license deal slippage as clients shifted CapEx toward memory and infrastructure. Management maintained full-year revenue guidance of 4-5% and free cash flow growth of ~$1B, expressing confidence that the shortfall is timing-related. Software growth was cut to 6-8%, but distributed infrastructure (Power/Storage) showed record momentum with $500M backlog. Q2 revenue grew 1% (vs. prior ~5% expectation), driven by a late-quarter shift in client spending toward servers/storage/memory due to supply concerns.

Buzzberg read Z17 best refresh cycle at 130% program to program IBM reported weaker-than-expected Q2 results with only 1% total revenue growth, missing prior expectations due to large enterprise license deal slippage as clients shifted CapEx toward memory and infrastructure. Management maintained full-year revenue guidance of 4-5% and free cash flow growth of ~$1B, expressing confidence that the shortfall is timing-related. Software growth was cut to 6-8%, but distributed infrastructure (Power/Storage) showed record momentum with $500M backlog. Q2 revenue grew 1% (vs. prior ~5% expectation), driven by a late-quarter shift in client spending toward servers/storage/memory due to supply concerns. Read full analysisCollapse analysis

Software growth of 5% (organic flat) missed; ~80% of software revenue (recurring) grew nicely, but large transaction-heavy ELAs slipped.
Management stated ~1/3 of slipped ELAs have already closed in early Q3, suggesting deferral rather than destruction.
Distributed infrastructure (Power & Storage) posted record revenue growth of 37% with $500M backlog, strongest on record.

CONSULTING Revenue growth1%Reported

INFRASTRUCTURE Revenue growth-7%Reported

SOFTWARE Revenue growth5%Reported

Revenue$17.162B+8% QoQ

6 grounded callouts

What matters now

The highest-signal changes from the call.

Demand

Z17 best refresh cycle at 130% program to program

Demand

One third of slipped deals already closed in July

Other

Lightwell early adopters include major banks

Show 3 more callouts

Nearly 50% of Z17 customers investing in AI capabilities

Guidance

Revenue growth guidance revised to 4-5% for 2026

Demand

Distributed infrastructure revenue grew 37%, best on record

Reported period

Actuals

Metric	Reported	Change
CONSULTING Revenue growth	1%	Reported
INFRASTRUCTURE Revenue growth	-7%	Reported
SOFTWARE Revenue growth	5%	Reported
Revenue	$17.162B	+8% QoQ
EPS	$2.93	+53% QoQ
Gross margin	57.73%	Reported

Forward-looking

Forward guidance

Metric	Period	Range	Midpoint	Status
Revenue	FY2026	4%–5%	4.5%	Lowered
RevenueSOFTWARE	FY2026	6%–8%	7%	Lowered

AI, capex & demand read

Management read

Tone

confident

Management acknowledged the second quarter shortfall but expressed unchanged conviction in the business, citing strong demand signals in distributed infrastructure and mainframe, and maintained free cash flow guidance.

Management AI read

Management stated that clients are in the early stages of AI adoption and that value will shift towards orchestration and data layers. They highlighted growing demand for AI in consulting, with generative AI representing about 50% of consulting signings, and that AI is driving capacity growth on the mainframe platform.

Capex

Investment and capacity

Management noted they are investing more than $10 billion in quantum over five years, including a billion-dollar cash contribution to a quantum foundry. They also proactively strengthened supply chain with inventory to support anticipated demand, and expect higher capex this year, though the majority is behind them.

all 12 named companies below

Companiesreturns since call

Customers

BAC +2.2% BK C +3.5% GS -4.0% JPM +2.6% MA +7.2% MS -1.1% RY -1.8% STT 0.0% V +4.6% WFC +2.3%

Customers

Major financial institutions are early adopters of IBM's Lightwell open-source security service, indicating strong enterprise validation and potential recurring revenue.

Evidence

“Early adopters of Lightwell include organizations like Bank of America, BNY, Citi, Goldman Sachs, JPMorgan Chase, MasterCard, Morgan Stanley, Royal Bank of Canada, State Street, Visa, Wells Fargo, and more.”

Arvind Krishna

Supply chain

MU -9.0%

Supply chain

Clients redirected CapEx spending toward servers, storage, and memory in late June to secure supply-constrained infrastructure ahead of expected price increases, causing IBM's large enterprise license agreements to slip. — Indicates that memory and storage suppliers (e.g., Micron) are experiencing demand surges and pricing power, while IBM's traditional software/hardware deals are being delayed as cash-constrained enterprises front-buy components.

Evidence

“We saw a shift in client spending priorities. Many clients redirected spending towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.”

Jim Kavanaugh

External signals

Supply-chain alpha · 1returns since call

Clients redirected CapEx spending toward servers, storage, and memory in late June to secure supply-constrained infrastructure ahead of expected price increases, causing IBM's large enterprise license agreements to slip.

Jim Kavanaugh

MU-9.0%

Methodology & coverage

Management-only analysis. All 12 validated company mentions are shown. Reported actuals and forward guidance are kept separate. Public evidence is limited to eight short attributed quotes. AI-generated analysis can be incomplete or wrong; verify important claims against the original source.