{"id":554763,"date":"2026-07-22T22:24:09","date_gmt":"2026-07-22T22:24:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/554763\/"},"modified":"2026-07-22T22:24:09","modified_gmt":"2026-07-22T22:24:09","slug":"ibm-ceo-addresses-earnings-shortfall-and-historic-stock-plunge-our-ai-strategy-is-the-right-one","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/554763\/","title":{"rendered":"IBM CEO addresses earnings shortfall and historic stock plunge: ‘Our AI strategy is the right one’"},"content":{"rendered":"\n

IBM (IBM<\/a>) CEO Arvind Krishna kicked off the company’s earnings call by acknowledging the shock warning a week ago<\/a>\u00a0that upended what had been a successful tech turnaround story.\u00a0 <\/p>\n

“Our AI strategy is the right one for IBM, and aligns to what we are known for: hybrid sovereignty and trust,” Krishna said on the call. “With the portfolio, we have opportunities ahead. It comes down to execution. That is where we fell short in the second quarter.” <\/p>\n

IBM stock rose 2% following the earnings release, as management faced questions on the quarter from Wall Street. <\/p>\n

The quality of the numbers out after the close underscored that Big Blue appears to be in the AI disruption zone. Sales in IBM’s infrastructure business dropped 7%, and consulting sales were unchanged. The software business grew sales by only 5%, slowing from an 11% growth rate in the first quarter. <\/p>\n

The earnings insight: <\/p>\n

Q2 net sales: +1% to $17.2 billion versus estimates for $17.2 billion. <\/p>\n

Q2 diluted earnings per share: +5% to $2.93 versus estimates for $2.93. <\/p>\n

2026 outlook: IBM guided for full-year constant currency revenue growth in the range of 4% to 5%. Previously, it forecast full-year constant currency revenue growth of “more than” 5%. <\/p>\n

Keep in mind that on July 14, IBM preannounced results<\/a> that were well below consensus estimates for the second quarter, so expectations were already low heading into today’s report card. IBM said it saw second quarter sales of $17.2 billion versus the analyst estimates of $17.85 billion at the time. Non-GAAP earnings are expected to be $2.93 compared to estimates of $3.02. <\/p>\n

Since the warning, Yahoo Finance AlphaSpace<\/a> data shows Wall Street has slashed its earnings per share estimates for IBM considerably for 2026 and 2027. <\/p>\n

Yahoo Finance caught up with IBM’s veteran CFO Jim Kavanaugh to discuss the results. Kavanaugh is also on the board of directors of telecom giant T-Mobile (TMUS<\/a>).\u00a0 <\/p>\n

Here’s what we learned on a few fronts. <\/p>\n

On the earnings warning last week: “What’s new is right now \u2026 companies, given the AI investments that they are going to make, which I think ultimately will get monetized and valued, today they’re building out the infrastructure portfolio to support that future of the AI realization. What changed is the level of magnitude given the extreme price increases that the hardware providers and memory providers have went to the market with in the last 30 days. <\/p>\n

“We did see the same thing last quarter inside IBM. Our inventory is up $600 million year over year because I went out consciously, made economically prudent buy-aheads for server storage parts, so I can protect against future price increases. That is happening in the marketplace. I don’t think that has anything to do with AI eating software or anything else. This is just they’re filling out the infrastructure layer as they move forward. It’s as simplistic as that.” <\/p>\n

On the need to get more aggressive on cost cuts: “We’ve been driving \u2026 inception to date the last few years \u2026 $5.5 billion dollars of annual exit run rate [in cost] savings by the end of the year. We’ll state tonight that we’re taking that up above $5.5 billion dollars overall. That’s generating about 300 basis points of operating leverage just on productivity alone. <\/p>\n

“That is the way we’re able to hold earnings, protect our cash, because it gives us a lot of financial flexibility. I always talk about the flywheel \u2014 that it gives us a lot of financial flexibility to invest for growth or what we need on R&D and around our go-to-market and ecosystem, while also mitigating any top-line portfolio mix impacts, etc. And that’s what you’re seeing in the second quarter. Sure, we only produced 1% revenue growth, but [with infrastructure sales down 7% and software sales up 5%], \u2026 we still grew profit 5% and operating margins 30 basis points. It’s the productivity. So I wouldn’t say \u2026 we’re accelerating it. It’s embedded in the DNA and how we’re structurally improving the competitiveness of our company.” <\/p>\n

On rumors that IBM is exploring a breakup<\/a>: “We regularly evaluate our portfolio capital allocation from a CFO perspective and ensure we’re creating the greatest value for our clients and shareholders. I think you would expect us to do that. I would tell you we remain confident IBM is strongest as an integrated company. Our strategy is built around the combination of those platforms that I think are playing in the market. Hybrid cloud \u2014 hard to argue that isn’t the architecture of choice today. AI, which we will be relevant and participate in, and quantum. We have an early first-mover leadership position in that. All of that plays to the integrated portfolio of having a software, infrastructure, consulting, and ecosystem differentiated value proposition. So we remain committed to that.” <\/p>\n

The bottom line: IBM shares \u2014 despite the valuation haircut \u2014 remain a “show me” story. No matter how the earnings call goes, IBM will have to stack some improved quarters together before investor trust returns.\u00a0 <\/p>\n

“I think that this is one that you’re going to have to wait, and it’s going to be in the penalty box for a while as they adjust their business,” Globalt Investments senior portfolio manager Thomas Martin said on Yahoo Finance’s Opening Bid<\/a> about IBM. <\/p>\n

Brian Sozzi<\/a> is Yahoo Finance’s Executive Editor, host of the Power Players with Brian Sozzi<\/a> podcast, and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi<\/a>, Instagram<\/a>, and LinkedIn<\/a>. Tips on stories? Email brian.sozzi@yahoofinance.com. <\/p>\n

Click here for in-depth analysis of the latest stock market news and events moving stock prices<\/a> <\/p>\n

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