IBM Stock Plunges as Q2 Revenue Misses Estimates Despite AI Growth

IBM shares took a significant hit Monday after the company released preliminary second-quarter financial results that fell short of Wall Street expectations, even as its artificial intelligence business continued to show strong momentum.

The technology giant reported revenue of approximately $17 billion for the quarter, representing a modest one percent increase compared to the same period last year. However, this figure came in well below the $18 billion consensus estimate analysts had projected. The disappointment sent shares plunging as much as 17 percent in premarket trading, wiping out gains that had accumulated during a period of bullish analyst sentiment and a remarkable 30 percent stock rally in May alone. CEO Arvind Krishna described the performance as “disappointing” in a letter to investors.

The revenue shortfall was widespread across IBM’s business segments. Software revenue grew five percent, with Red Hat contributing an 11 percent increase, yet both fell short of forecasts. Consulting revenue remained essentially flat, while infrastructure revenue dropped seven percent as clients reduced spending on mainframes and storage products. Krishna attributed the miss to execution challenges, noting that several large deals failed to close during the quarter. He also pointed to a shift in client behavior, with some businesses redirecting capital expenditures toward servers, storage, and memory in late June, anticipating tariff-related price increases.

Adjusted earnings per share came in at nearly $3.00, also below the roughly $3.00 consensus expectation. Gross profit margin declined to just under 58 percent, a drop of about one percentage point from the prior year, while pre-tax margin slipped to just over 14 percent. The combination of weaker revenue and compressed margins fueled the sharp sell-off.

The one area of strength was artificial intelligence. IBM reported that its cumulative AI bookings have now surpassed $12 billion, indicating sustained enterprise demand for AI consulting and infrastructure services even as the broader business struggled. The company has been aggressively pursuing AI partnerships, including a recent collaboration with OpenAI focused on enterprise cybersecurity. Krishna has positioned AI as the growth engine that will eventually transform IBM’s revenue composition.

However, the preliminary results raise concerns about whether that AI momentum can offset ongoing weakness in IBM’s legacy businesses quickly enough. The infrastructure decline and consulting stagnation are familiar challenges for the company, and the execution issues Krishna cited point to internal hurdles beyond just macroeconomic conditions. IBM plans to release its full quarterly results later this month.

For investors who had embraced the narrative that IBM was finally turning a corner, these preliminary numbers serve as a reminder that the transition from legacy enterprise computing to an AI-driven business model remains uneven. Before Monday’s drop, the stock had been one of the best performers in the technology sector this year.