# IBM Cuts 2026 Revenue Forecast as Mainframe Sales Plunge 42% in Q2 Miss > Source: > Published: 2026-07-23 11:52:56.214467+00:00 # IBM Cuts 2026 Revenue Forecast as Mainframe Sales Plunge 42% in Q2 Miss - IBM Q2 revenue of $17.16 billion missed consensus of ~$17.58 billion; adjusted EPS of $2.93 fell short of the $2.97 estimate [[1]](https://www.cnbc.com/2026/07/22/ibm-q2-earnings-report-2026.html) - Z mainframe sales plunged 42%, dragging the Infrastructure segment down 7% and shaving more than five percentage points off overall growth [[2]](https://finance.biggo.com/news/99221129-7573-4204-ab53-2def734c40e3) - Full-year 2026 constant-currency revenue growth guidance was cut to 4%-5%, down from prior expectations exceeding 5% [[1]](https://www.cnbc.com/2026/07/22/ibm-q2-earnings-report-2026.html) - Software revenue rose 5% to $7.76 billion, with Red Hat accelerating to 11% growth; IBM launched an AI coding tool called Bob adopted by 80,000+ employees [[3]](https://www.marketbeat.com/instant-alerts/international-business-machines-q2-earnings-call-highlights-2026-07-22/) - IBM shares fell approximately 2.2% on July 23 following the report, extending a year-to-date decline of roughly 30% [[4]](https://www.fxleaders.com/news/2026/07/23/ibm-stock-slides-2-2-after-revenue-outlook-cut-as-ai-spending-shifts-away-from-mainframes/) IBM lowered its full-year 2026 revenue forecast after second-quarter results missed Wall Street expectations, driven by a 42% collapse in Z mainframe sales that CEO Arvind Krishna attributed to enterprise customers redirecting capital budgets toward AI infrastructure. The company now projects constant-currency revenue growth of 4% to 5% for the year, down from its prior guidance of more than 5% [1]. Revenue for the quarter ending June 30 came in at $17.16 billion, up just 1% year over year and below the analyst consensus of roughly $17.58 billion. Adjusted earnings per share were $2.93, missing the $2.97 estimate. The Infrastructure segment fell 7% to $3.84 billion, with mainframe weakness alone reducing IBM's overall growth rate by more than five percentage points — far exceeding the one-to-two-point drag management had anticipated [2]. IBM shares slid approximately 2.2% on July 23 following the full earnings release, extending a year-to-date decline of roughly 30%. The stock had already suffered a historic 25% single-day plunge on July 14 when IBM disclosed preliminary results [4]. ## What Happened IBM's Q2 miss centered on its Infrastructure division, where the Z mainframe business — long a high-margin pillar — saw revenue fall 42%. CFO James Kavanaugh said the mainframe shortfall 'impacted IBM's growth by over five points,' a dramatic overshoot of internal expectations [2]. Management attributed the decline to enterprise customers deferring large infrastructure deals as they rerouted spending toward AI-related investments. Krishna identified three converging factors behind the miss: customer capital expenditure reprioritization toward AI infrastructure, cybersecurity-related distractions, and execution failures on large deal closings. 'We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected,' Krishna said on the earnings call [5]. The Software segment fared better, posting $7.76 billion in revenue — a 5% increase — though it still fell short of the $7.88 billion consensus. Red Hat was a standout, accelerating to 11% growth. Annual recurring revenue across the software portfolio reached $24.6 billion, up 8%, with approximately 80% of software revenue now recurring [3]. Consulting revenue grew 1% to $5.33 billion, with generative AI representing roughly 50% of new signings . [[3]](https://www.marketbeat.com/instant-alerts/international-business-machines-q2-earnings-call-highlights-2026-07-22/)## AI Initiatives and Bob Despite the topline miss, IBM pushed forward on AI product development. The company launched 'Bob,' an internal AI coding tool built on a mixture of generative models, which has been adopted by more than 80,000 IBM employees. Management positioned Bob as a productivity accelerator that could eventually become an external product offering [3]. On the consulting side, AI now accounts for more than 30% of IBM's consulting backlog, up from smaller shares in prior quarters. Krishna characterized the shift as clients 'moving from pilots to enterprise-wide deployments' of generative AI [3]. IBM also announced a $10 billion-plus quantum computing investment over five years, including plans for a U.S.-based quantum chip foundry backed by $1 billion from the Department of Commerce and $1 billion from IBM itself, targeting fault-tolerant systems by 2029 [3]. ## The Guidance Cut IBM's revised full-year outlook calls for constant-currency revenue growth of 4% to 5%, with a midpoint of 4.5% that falls below the prior analyst consensus of 4.8% [6]. Software revenue growth is expected in the 6% to 8% range, while Infrastructure is now pegged at low single-digit growth and Consulting at low-to-mid single-digit growth . [[3]](https://www.marketbeat.com/instant-alerts/international-business-machines-q2-earnings-call-highlights-2026-07-22/)The company maintained its target for approximately $1 billion in free cash flow growth for the year, but meeting that goal requires roughly $10.97 billion in second-half free cash flow — a 10.6% year-over-year increase — creating significant back-half pressure [6]. First-half free cash flow came in at $4.8 billion, flat with the prior year . [[3]](https://www.marketbeat.com/instant-alerts/international-business-machines-q2-earnings-call-highlights-2026-07-22/)Krishna attempted to frame the miss as a timing issue rather than a demand problem. 'Much of the demand was simply deferred, not destroyed,' he said, adding that one-third of the deferred deals had already closed in the early weeks of the third quarter [2]. ## Why It Matters IBM's results illustrate a growing tension in enterprise IT: as companies pour capital into AI infrastructure — GPUs, cloud compute, and AI software — traditional hardware categories like mainframes are seeing budget displacement. The 42% mainframe decline is one of the sharpest quarterly drops in the product line's history, signaling that even IBM's most entrenched enterprise customers are reallocating spending [4]. The bright spot in distributed infrastructure — which surged 37% with a record $500 million order backlog — underscores that enterprise hardware demand hasn't vanished; it's shifting toward AI-optimized architectures [3]. IBM's challenge is whether its software and consulting businesses, where AI adoption is accelerating, can grow fast enough to offset the structural decline in legacy infrastructure. IBM maintained its quarterly dividend of $1.69 per share, and operating pre-tax margins expanded by 30 basis points in the quarter, suggesting the profitability story remains intact even as the topline disappoints [3]. ## Companies mentioned ## Further sources [[1] CNBC — IBM lowers full-year forecast after earnings warning ↗](https://www.cnbc.com/2026/07/22/ibm-q2-earnings-report-2026.html) [[2] BigGo Finance — IBM Slashes 2026 Revenue Outlook as Mainframe Sales Plunge 42% ↗](https://finance.biggo.com/news/99221129-7573-4204-ab53-2def734c40e3) [[3] MarketBeat — International Business Machines Q2 Earnings Call Highlights ↗](https://www.marketbeat.com/instant-alerts/international-business-machines-q2-earnings-call-highlights-2026-07-22/) [[4] FX Leaders — IBM Stock Slides 2.2% After Revenue Outlook Cut as AI Spending Shi… ↗](https://www.fxleaders.com/news/2026/07/23/ibm-stock-slides-2-2-after-revenue-outlook-cut-as-ai-spending-shifts-away-from-mainframes/) [[5] Eciks — IBM cuts full-year guidance following weaker-than-expected Q2 results ↗](https://eciks.org/15204-19160-ibm-earnings-q2-forecast-cut) [[6] TS2 Tech — IBM lowers 2026 revenue forecast while higher cash-flow aims boost s… ↗](https://ts2.tech/en/ibm-nyseibm-lowers-2026-revenue-forecast-while-higher-cash-flow-aims-boost-second-half-pressure/) The stories that matter, in one email. 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