IBM Shares Rise Despite Lower Revenue Outlook as Company Bets on AI Strategy

IBM shares moved higher after the company released its second-quarter earnings, even as management acknowledged that recent results fell short of expectations and lowered its full-year revenue outlook.

Opening the earnings conference call, CEO Arvind Krishna addressed the company's unexpected earnings warning issued last week, which interrupted what had been viewed as a successful turnaround for the technology giant.

Krishna reaffirmed IBM's commitment to artificial intelligence, emphasizing that the company's strategy remains centered on hybrid cloud, data sovereignty, and trusted enterprise solutions.

"Our AI strategy is the right one for IBM and aligns with what customers know us for: hybrid, sovereignty and trust," Krishna said. "The opportunities remain significant. Our challenge in the second quarter was execution."

Investors appeared encouraged by management's comments, sending IBM shares about 2% higher following the earnings announcement despite a softer growth outlook.

The quarterly report, however, highlighted the challenges facing the company as businesses continue adjusting their technology spending priorities during the rapid expansion of AI infrastructure.

Revenue in IBM's infrastructure segment declined 7%, while consulting revenue remained essentially flat. The software division posted 5% sales growth, slowing from the 11% growth rate recorded during the first quarter.

For the second quarter, IBM reported $17.2 billion in revenue, a 1% increase from a year earlier and in line with Wall Street expectations. Diluted earnings per share rose 5% to $2.93, also matching analysts' forecasts.

Looking ahead, IBM revised its full-year outlook, now expecting constant-currency revenue growth of 4% to 5% in 2026. The company had previously projected growth of more than 5%, reflecting a more cautious view of near-term business conditions.

The updated guidance follows a preliminary earnings announcement released on July 14, when IBM warned investors that second-quarter sales would likely reach $17.2 billion, below analysts' earlier expectations of $17.85 billion. At the same time, the company projected adjusted earnings of $2.93 per share, compared with Wall Street's previous estimate of $3.02.

Since that warning, analysts have significantly reduced their earnings forecasts for IBM in both 2026 and 2027.

Chief Financial Officer Jim Kavanaugh said the company's recent performance reflects broader changes occurring across the technology industry as businesses invest heavily in AI infrastructure.

According to Kavanaugh, organizations are accelerating purchases of servers, storage equipment and other hardware needed to support future AI deployments. He noted that the sharp increase in hardware and memory prices over the past month has prompted many companies to buy equipment earlier than planned.

IBM adopted a similar strategy, increasing inventory by approximately $600 million compared with a year ago in order to secure server and storage components before additional price increases.

Kavanaugh emphasized that the trend should not be interpreted as artificial intelligence replacing software demand. Instead, he said, companies are currently focused on building the infrastructure necessary to support future AI applications, with broader software adoption expected to follow as those investments mature.