International Business Machines Corp (NYSE:IBM) drew a more cautious outlook from analysts after preliminary second quarter results missed expectations, with Bank of America and UBS citing weaker software and infrastructure demand, shifting customer capital spending priorities and delayed large deals as key challenges for the company.
Bank of America noted that IBM’s preliminary Q2 revenue of $17.2 billion came in below the $17.9 billion consensus estimate, while adjusted earnings per share of $2.93 missed expectations of $3.02. The analysts wrote that the revenue miss was larger than expected, driven primarily by weaker Software and Infrastructure results, although profitability held up better.
The firm highlighted IBM’s comments that customers reprioritized capital expenditures late in the quarter, affecting spending across its portfolio. Bank of America also pointed to execution issues, large deal slippage and cybersecurity concerns among clients as factors contributing to the weaker performance.
IBM’s software business was a major source of weakness, with revenue growth of 5% compared with Bank of America’s expectation for double-digit growth. The analysts noted that Red Hat (NYSE:RHT) performed slightly ahead of expectations, growing 11% year over year, but said the main shortfall appeared to come from transaction processing, which was likely down by a high single-digit percentage. They also pointed to weaker-than-expected organic contributions from IBM’s data and automation offerings.
Infrastructure revenue declined 7%, below IBM’s previous guidance for a low single-digit decline. Bank of America noted that distributed infrastructure performed well, increasing 37% year over year, but said more capital expenditure-sensitive mainframe revenue was weaker than anticipated.
UBS also lowered its estimates following the update, citing softer demand in infrastructure and transaction processing. The firm cut its second-quarter revenue estimate to $17.218 billion from $17.858 billion and reduced its adjusted earnings per share estimate to $2.93 from $3.07.
Both firms lowered their longer-term expectations for IBM. Bank of America wrote that software growth is now tracking below IBM’s previous double-digit outlook and expects mid-single-digit software growth, including acquisitions, along with a mid-single-digit decline in infrastructure revenue.
UBS wrote that the impact of shifting customer capital spending priorities could persist into the second half of 2026 and 2027. The firm lowered its 2026 revenue growth forecast to 3.6% from 5.5% previously and reduced its 2027 growth forecast to 2.7% from 3.1%.
Despite the near-term challenges, Bank of America maintained a ‘Buy’ rating, writing that IBM remains positioned to drive software growth beyond the current disruption.
UBS kept its $236 price target unchanged, noting that its valuation already reflected expectations for 3% to 4% organic growth.
Shares of IBM traded hands at $213, down about 28% in the year to date.