IBM shares tumble 17% as weak Q2 revenue offsets AI gains

IBM shares plunged as much as 17 percent in premarket trading on Monday, erasing weeks of gains driven by bullish analyst coverage. The drop followed preliminary second-quarter results that fell well short of Wall Street forecasts. Revenue reached roughly $17 billion, a one percent increase from a year ago but significantly below the $18 billion consensus estimate. Adjusted earnings per share landed just under three dollars, missing the roughly three dollar consensus.

The underperformance was broad across its divisions. Software revenue grew five percent and Red Hat climbed 11 percent, yet both lagged behind projections. Consulting revenue was essentially flat, while infrastructure revenue dropped seven percent as clients pulled back on mainframe and storage investments. Gross profit margins contracted to just under 58 percent, and pre-tax margins slipped to just over 14 percent.

Chief Executive Arvind Krishna described the results as "disappointing" in a letter to investors. He attributed the shortfall to internal execution issues, specifically large deals that failed to close in the final weeks of the quarter. Krishna also noted that some clients shifted capital spending toward servers, storage, and memory in late June to get ahead of anticipated tariff-related price increases.

For European enterprises and investors tracking the transatlantic tech recovery, the results illustrate the friction in replacing legacy IT contracts with artificial intelligence services. European companies are major buyers of IBM's consulting and infrastructure offerings, making the flat consulting revenue and seven percent infrastructure drop a relevant bellwether for continental corporate IT spending. Meanwhile, IBM’s cumulative AI bookings have surpassed $12 billion, pointing to sustained enterprise demand bolstered by a recent cybersecurity partnership with OpenAI.

However, the sudden sell-off—erasing a 30 percent rally from May alone—signals that equity markets are losing patience with the transition timeline. The stagnation in consulting and the decline in infrastructure represent familiar structural problems for IBM, and the failure to close deals points to internal hurdles beyond macroeconomic headwinds. Until AI bookings translate into realized revenue that offsets legacy weakness, IBM's valuation remains exposed. The company plans to release its full quarterly results later this month.