International Business Machines NYSE:IBM fell 22.31% in premarket trading after releasing preliminary second-quarter 2026 results that came in below the company's expectations. Revenue rose 1% year over year to $17.2 billion, with Software revenue increasing 5% and Consulting roughly flat, while Infrastructure revenue declined 7%. Operating non-GAAP EPS increased 5% to $2.93, but GAAP EPS fell 2% to $2.27 as gross margin contracted to 57.7%.
In a letter to investors, CEO Arvind Krishna said the shortfall stemmed primarily from weaker-than-expected IBM Z performance and its associated software stack, particularly Transaction Processing. He said many customers redirected late-quarter capital spending toward servers, storage, and memory to secure supply-constrained infrastructure ahead of expected price increases, while rapidly evolving cybersecurity concerns distracted clients during the quarter. According to Krishna, IBM "did not adapt and move quickly enough," resulting in numerous large deals slipping beyond the quarter.
Despite the disappointing quarter, management pointed to the strategic transformation of the business. Red Hat revenue growth accelerated to 11% sequentially, recent acquisitions including HashiCorp and Confluent performed well, and Distributed Infrastructure revenue rose 37%. IBM also highlighted the recent launch of Lightwell, its $5 billion open-source security clearinghouse built with Red Hat, and reaffirmed plans to invest more than $10 billion in quantum computing over the next five years, while maintaining its goal of delivering a large-scale fault-tolerant quantum computer by 2029.
Final results and full-year expectations come on the company's earnings call July 22.