IBM Posts Its Worst Trading Day on Record After a Preliminary Q2 Warning

Shares of International Business Machines (IBM) fell 25.2% on Tuesday to close at $217.07, after the company released preliminary second-quarter results ahead of schedule that undershot Wall Street’s expectations. It was the steepest single-day decline in the stock’s history.

What happened

In an unscheduled disclosure a week before its full report, IBM said second-quarter revenue rose just 1% to $17.2 billion, below the roughly $17.9 billion analysts had modeled. The weakness was concentrated in hardware: Infrastructure revenue fell 7% year over year, while Software grew 5% and Consulting was essentially flat, up 1% at constant currency. Profitability held up better than the top line — operating (non-GAAP) earnings rose 5% to $2.93 per share, and GAAP earnings were $2.27, down 2% — so the market’s reaction centered on revenue and the outlook rather than margins. On a GAAP basis, gross margin narrowed 100 basis points to 57.7%.

Chief Executive Arvind Krishna laid out several reasons for the shortfall. He pointed to a shortfall in the company’s Z mainframe performance and its associated Transaction Processing software; to clients redirecting spending toward servers, storage and memory to secure supply-constrained infrastructure ahead of expected price increases; to large deals that “failed to close on the timelines we expected”; and to customers “distracted with rapidly-evolving, industry-wide cybersecurity concerns.” “We did not adapt and move quickly enough,” Krishna wrote.

The one-day loss ranks as IBM’s worst on record, exceeding the roughly 23.7% drop the stock took on Oct. 19, 1987, according to multiple market-data compilations.

Context

Tuesday’s move dwarfed the stock’s recent range. IBM had already fallen about 21% over the prior 30 days, and the close left it roughly 34% below its 90-day high of $329.23 while sitting just above its 90-day low of $214.64 — about 1% off that floor. Trading volume told the same story of a violent repricing: some 67.4 million shares changed hands, more than eight times the stock’s 20-day average of roughly 8 million.

The warning spilled into enterprise-software peers. ServiceNow (NOW) fell about 5.8% on the session as investors weighed whether IBM’s deal-timing troubles hinted at broader hesitation in corporate IT budgets. Cutting the other way, several memory and semiconductor suppliers gained ground — a move consistent with IBM’s own account of customers front-loading server, storage and chip purchases ahead of anticipated price increases.

For a company that spans hardware, software and consulting, the split is notable: the two higher-margin, more predictable businesses still grew, while the swing came from infrastructure and from deals that slid out of the quarter rather than disappearing outright. Whether those contracts close later — or reflect a durable shift in how enterprises are budgeting for artificial-intelligence-era infrastructure — is the question the market is now trying to price.

What to watch

IBM is scheduled to report complete second-quarter results and hold its earnings conference call on Wednesday, July 22, at 5:00 p.m. Eastern. That report is expected to fill in full segment detail and any updated guidance behind Tuesday’s preliminary figures, including how much of the missed revenue management views as deferred versus lost.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.