IBM’s Software Engine Revs While Mainframe Stalls — Can the Hybrid Bet Pay Off?
Published on 07/26/2026 at 15:21 | Redaktion boerse-global.de
The worst single-day drubbing IBM shareholders have endured since 1968 came on July 14, when the stock cratered 25% after the company issued preliminary results that badly missed Wall Street’s expectations. When the full second-quarter numbers landed on July 22, the picture sharpened: earnings per share of $2.93 met the lowered bar, but revenue of $17.16 billion fell short of even the revised consensus estimate of $17.46 billion.
Chief Executive Arvind Krishna blamed the miss on a shift in corporate spending patterns. Companies are pouring capital into AI hardware — servers and chips — while putting software purchases on hold. To make matters worse, the emergence of Anthropic’s AI tool called Mythos has reportedly made customers more cautious about allocating budgets to cybersecurity. Krishna told investors that roughly one-third of the delayed software deals have already returned, offering a sliver of hope that the worst may be behind the tech giant.
The stock closed Friday at €188.38, up 3.74% from the session before, providing a modest relief rally after touching a 52-week low of €175.14. Still, the year-to-date loss stands at a painful 27.52%, and the stock remains 35.67% below its 52-week high of €292.85.
DĂ©jĂ Vu for IBM Bulls
For long-time IBM watchers, the pattern feels eerily familiar. Back in February, another Anthropic tool — this one designed to modernize legacy Cobol code — triggered a 13.15% single-day plunge, then the worst since 2000. The stock fully recovered by June. Whether history repeats itself this time is an open question among analysts.
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The bull case rests on genuine momentum in software. Red Hat grew 11% in the second quarter, while the data business jumped 19%. The software division overall generated $7.76 billion in revenue, up 5% from a year earlier. Consulting held steady at $5.33 billion. Krishna also pointed to structural growth in AI: cumulative bookings from AI projects have surpassed $2 billion since mid-2023, double the previously reported figure, with roughly three-quarters coming from consulting and the rest from software.
On the bearish side, the infrastructure business tells a different story. The division tumbled 7% to $3.84 billion, with the Z-mainframe line collapsing 42% as customers delayed purchases in favor of AI infrastructure. Competitors like Salesforce and ServiceNow have lost roughly a third of their market value this year, suggesting that the shift away from traditional software budgets is industry-wide, not unique to IBM.
Krishna Rejects Breakup Talk
During the post-earnings conference call, Krishna pushed back against speculation that IBM might consider a breakup. The company is “strongest as an integrated organization,” he said, with hybrid cloud, AI, and quantum computing forming a shared foundation. The CEO insisted that the second-quarter execution failure was not a portfolio problem but a timing issue.
The guidance adjustment was modest rather than dramatic. IBM now expects constant-currency revenue growth of 4% to 5% for the full year, down from its previous forecast of “more than 5%.” Crucially, the company maintained its promise that free cash flow would rise by roughly $1 billion year-over-year — a signal that management sees the revenue shortfall as temporary.
Analysts Cautious but Not Capitulating
Post-crash price targets came down without triggering a wave of downgrades. Citi lowered its target to $245 while keeping a Buy rating. Argus cut to $280, also maintaining a Buy. Analyst Thomas Martin captured the mood: IBM will spend some time in the “penalty box,” he said. The consensus rating remains “Moderate Buy,” with an average price target around $265.
Stifel’s David Grossman is less optimistic, seeing the stock stuck in a sideways range with a slight downward bias due to low near-term visibility and seasonal headwinds. The technical picture supports caution: the Relative Strength Index sits at 35.5, still in oversold territory even after Friday’s bounce, and the stock trades 17.61% below its 50-day moving average of €228.64.
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Institutional investors have been trimming exposure. The number of hedge funds holding IBM fell to 59 at the end of the first quarter from 63 in the prior period, though institutions collectively still own about 59% of the float. Smaller asset managers like Matrix Private Capital Group and Lombard Odier Asset Management have made only modest adjustments to their positions.
The Quantum Wild Card
Beyond the quarterly noise, IBM is placing a long-term bet on quantum computing. The company is working with the U.S. Department of Commerce on a quantum computer factory targeting 2029. For now, the dividend remains a steady anchor: IBM pays a quarterly dividend of $1.69 per share, yielding roughly 3.2%, a figure that defensive investors are likely to keep in mind.
A cryptic comment from investor Jim Cramer over the weekend hinted at a possible surprise involving IBM’s CEO, though no details emerged. For shareholders, the central question is whether the February recovery pattern holds or whether this time the pullback in cybersecurity and software budgets runs deeper. Krishna’s promise that a third of the delayed deals have returned will face its real test in the quarters ahead — when those commitments need to convert into actual revenue.
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IBM Stock: New Analysis - 26 July
Fresh IBM information released. What's the impact for investors? Our latest independent report examines recent figures and market trends.
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