Shares of the technology company IBM tumbled by as much as 25% on Tuesday, a punishing one-day slide that followed weaker-than-anticipated earnings released on Monday. The drop was the steepest the company has seen in decades, dragging the stock down toward roughly $210 after it had been trading around the $280 level.
What the numbers showed
The preliminary second-quarter figures put revenue at $17.2 billion, below what the market had been counting on. IBM's own projection of $17.2 billion in quarterly sales fell short of the $17.85 billion analysts had penciled in. On the profit side, non-GAAP earnings are expected to come in at $2.93, against forecasts of $3.02. The miss triggered a wave of analyst downgrades and stoked worries about the company's strategy in AI infrastructure. Even so, IBM still carries an overall buy rating on Wall Street, though Tuesday's plunge is clearly a warning sign.
The CEO owns the stumble
"This quarter we faltered," Chief Executive Arvind Krishna wrote in a letter to investors, admitting the company "did not adapt and move quickly enough" as customers steered their technology budgets toward AI servers, storage and memory. Krishna said IBM had braced for some disruption from supply-chain constraints, but had badly underestimated just how sharply customers would redirect their spending.
He also pointed to the mainframe cycle. "When we discussed our expectations with you in April, we noted that we would be wrapping up the launch of z17 in the second quarter," Krishna said. "Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter."
Guidance and the analyst view
Beyond the earnings miss itself, IBM also handed investors softer-than-expected forecasts for the coming quarter and the rest of the fiscal year, which deepened the selloff. On the Street, the average price target still sits at $303.83, with the most bullish call at $375.00 and the most cautious at $191.00. That average implies a 39.37% jump from the current price, yet it is lower than where forecasts stood just a week ago. On Tuesday, HSBC slapped a sell rating on the stock while Morgan Stanley moved to hold. Both firms count five-star analysts among their ranks, so the earnings shortfall could hang over investors' thinking for the month ahead.
