IBM lowered its revenue growth forecasts for 2026 after second-quarter results showed companies are prioritizing spending on AI infrastructure, such as servers, chips, and data center equipment, at the expense of traditional software and mainframes.

The company said it expects revenue growth of 4% to 5% in 2026, compared to its previous forecast of growth exceeding 5%.

Quarterly results fell short of market expectations, with revenue rising only 1% to $17.16 billion, versus expectations of $17.58 billion, while net profit was $2.17 billion, down from a year earlier.

The company also reported adjusted earnings of $2.93 per share, compared to analysts' expectations of $2.97.

IBM shares edged lower in after-hours trading after closing Wednesday up about 2%.

CEO Arvind Krishna had worried investors last week when he acknowledged that the company had 'stumbled' in adapting to market demands and that a number of major deals had been postponed, leading to a 25% drop in the stock, its biggest one-day loss in over a century.

During the earnings call, Krishna explained that most of the deals not closed in the second quarter were large capital investments from major clients, noting that about a third of those deals were already completed in the current third quarter.

He said: 'A large part of the demand has been postponed, not cancelled.'

IBM's forecasts highlight the shift in the technology market, as companies race to invest in AI infrastructure, raising investor concerns about declining spending on traditional software sectors.

Brooks Idlet, an analyst at CFRA, said IBM's results do not reflect a general weakness in the software sector, but are largely related to issues specific to the company's hardware business.

Revenue from the Z mainframe, used to process millions of daily transactions in sectors such as banking and aviation, fell 42% in the second quarter, leading to a 7% decline in infrastructure segment revenue to $3.84 billion.

CFO James Kavanaugh said mainframe performance impacted the company's growth by more than five percentage points during the quarter, compared to expectations of only one to two percentage points.

He added that the company sees no signs of customers abandoning mainframes and expects strong performance in the second half of the year.

In contrast, software revenue rose 5% to $7.76 billion, but still fell short of analysts' expectations of $7.88 billion."); googletag.cmd.push(function() { onDvtagReady(function () { googletag.display('div-gpt-ad-3341368-4'); }); }); }