IBM cuts 2026 revenue forecast as AI spending squeezes mainframe sales
IBM lowered its 2026 revenue growth target after a steep drop in mainframe sales highlighted how corporate budgets are being diverted toward AI infrastructure.
IBM now expects 2026 revenue growth of 4 per cent to 5 per cent, down from a prior forecast of more than 5 per cent. The midpoint of this new range falls short of the average analyst estimate of 4.8 per cent, which had projected full-year revenue of $70.77 billion. The revised outlook follows a second-quarter performance that missed Wall Street expectations across the board.
For the quarter ended June 30, IBM reported total revenue of $17.16 billion, a 1 per cent increase that fell short of the $17.58 billion consensus. Net profit dipped to $2.17 billion from a year earlier, while adjusted earnings of $2.93 per share missed the average estimate of $2.97. The primary drag on the results was a 42 per cent collapse in revenue from IBM's Z mainframe line.
That mainframe slump dragged total infrastructure segment revenue down 7 per cent to $3.84 billion. Chief Financial Officer James Kavanaugh noted that "that mainframe stack of hardware and transaction processing software impacted IBM's growth by over five points in the quarter," far exceeding the one to two points the company anticipated. Software revenue climbed 5 per cent to $7.76 billion, though this still missed the $7.88 billion target.
The earnings miss highlights a growing tension in enterprise technology budgets. As corporations rush to secure scarce AI servers, chips and networking equipment, capital is being diverted away from legacy systems and broader software applications. CEO Arvind Krishna acknowledged last week that IBM had "faltered" in adapting to this shift, noting that "numerous large deals" had slipped.
Those comments triggered a 25 per cent plunge in IBM's share price, marking the steepest single-day drop in over a century. While the sudden pivot toward AI hardware has stoked broader investor fears about a potential software sector slowdown, some analysts argue IBM's pain is largely isolated to its mainframe dependency.
Management sought to reassure the market that the hardware weakness is a timing issue rather than a structural shift. Kavanaugh stated the company sees "no evidence of clients moving off a mainframe." He added that IBM expects "significant outperformance in the program to continue through the second half," implying a recovery in delayed transaction processing deals as the year progresses.
