IBM shares plunge after preliminary Q2 revenue falls short of estimates despite surging AI bookings

TL;DR

IBM shares fell sharply after preliminary Q2 revenue came in below estimates despite AI bookings topping $12 billion cumulatively.

IBM issued preliminary second-quarter results on Monday showing revenue of roughly $17 billion, up one percent year over year but well below the $18 billion that analysts had expected. Shares fell as much as 17 percent in premarket trading, erasing weeks of gains that had been fuelled by bullish analyst coverage and a stock rally of 30 percent in May alone. CEO Arvind Krishna called the results disappointing in a letter to investors.

The miss was broad. Software revenue rose five percent, with Red Hat up 11 percent, but both fell short of forecasts, while consulting was essentially flat and infrastructure revenue dropped seven percent as clients pulled back on mainframe and storage purchases. Krishna blamed execution issues including large deals that failed to close, and said some clients shifted capital spending toward servers, storage, and memory in the final weeks of June ahead of expected tariff-related price increases.

Adjusted earnings per share came in at nearly three dollars, also below the roughly three dollar consensus. Gross profit margin fell to just under 58 percent, down about one percentage point from a year earlier, while pre-tax margin slipped to just over 14 percent. The combination of weaker revenue and narrower margins drove the sharp sell-off.

The one bright spot was artificial intelligence. IBM said cumulative AI bookings have now surpassed $12 billion, suggesting sustained enterprise demand for AI consulting and infrastructure even as the broader business stumbled. The company has been investing heavily in AI partnerships, including a recent tie-up with OpenAI on enterprise cybersecurity, and Krishna has framed AI as the growth engine that will eventually reshape the company’s revenue mix.

But the preliminary results raise questions about whether that AI momentum can offset weakness in IBM’s legacy businesses quickly enough. The infrastructure decline and consulting stagnation are familiar problems for the company, and the execution issues Krishna cited suggest internal challenges beyond macroeconomic headwinds. IBM plans to release full quarterly results later this month.

For investors who had bought into the thesis that IBM was finally turning a corner, the preliminary numbers are a reminder that the transition from legacy enterprise computing to an AI-driven business remains uneven. The stock had been one of the best performers in the technology sector this year before Monday’s drop.

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