IBM’s earnings results will be closely watched on Wednesday, following a more than 30% decline in its stock due to management’s early announcement of likely underperformance.

This warning was issued well ahead of the second quarter 2026 earnings report, which is scheduled for release on July 22.

On July 14, in a Form 8-K filing with the US SEC, IBM’s chairman, president and chief executive officer, Arvind Krishna, addressed investors regarding the company’s preliminary quarterly performance and the reasons behind the shortfall in Software and Infrastructure revenue. The stock price of IBM slumped 25% on that day.

According to Krishna’s letter, clients pulling back is IBM’s worst setback.

“In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. This dynamic impacted client buying patterns,” wrote Krishna.

“While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization. In addition, clients were distracted by rapidly evolving, industry-wide cybersecurity concerns in the quarter. These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall,” added Krishna.

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The second quarter preliminary results released in Krishna’s July 14 letter to shareholders showed:

Gross Profit Margin: GAAP: 57.7 percent, down 100 basis points; Operating (Non-GAAP): 59.4 percent, down 70 basis points

Pre-Tax Income Margin: GAAP: 14.4 percent, down 90 basis points; Operating (Non-GAAP): 19.2 percent, up 30 basis points

Revenue of $17.2 billion, up 1 percent

Software revenue up 5 percent

Consulting revenue flat, up 1 percent at constant currency

Infrastructure revenue down 7 percent

Year to date, net cash from operating activities of $7.8 billion; free cash flow of $4.8 billion

Diluted Earnings Per Share: GAAP: $2.27, down 2 percent; Operating (Non-GAAP): $2.93, up 5 percent

A key concern was that IBM’s sales for the second quarter came in at $17.2 billion, compared to analyst estimates of $17.86 billion, and its adjusted earnings per share of $2.93 fell short of Wall Street’s forecast of $3.02, according to a report in Fool.com.

Outlook

If IBM’s Q2 report on July 22 shows higher software growth than expected, the stock may recover, while a disappointing report could lead to additional decline in its value. What the company plans to do differently to fix the problem, along with its future goals, will determine the stock’s direction. IBM stock is down 28% year-to-date and has remained negative across all periods, 1, 3, 6, and 12 months. Ahead of the results, IBM stock is down by over 1% in the pre-market trade.

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