Even before IBM's bleak earnings pre-announcement sent shares into a tailspin, one firm had already slashed its rating on the stock to a Wall Street low, saying it had found a far better investment alternative.

HSBC on Tuesday downgraded shares of the software and consulting giant to Reduce -- the equivalent of a Sell rating -- from Hold while slashing its price target to $191 from $231.

The call represents Wall Street's most bearish view on IBM, followed by BNP Paribas, which rates the stock at Underperform with a $195 target. Issued just ahead of Tuesday morning's preliminary second-quarter report, the downgrade proved prophetic: shares plummeted 25% to $216.44 after revenue and earnings missed expectations.

Rather than invest in IBM, HSBC recommends investors buy 1.19 shares of IonQ, 1.22 shares of SAP, 0.16 shares of Accenture, and 0.95 shares of HP Inc. The result is a so-called synthetic IBM that replicates the company's exposure to quantum computing, software, consulting, and hardware, respectively.

By the firm's calculations, this basket of stocks delivers 2030 "earnings per share" of $23.15 versus $16.59 a share for IBM while maintaining broadly similar subsector exposure. Accordingly, the firm believes this "synthetic IBM" offers superior medium-term earnings power for the same upfront cost.

That argument may gain momentum following IBM's earnings disappointment on Tuesday. The company pre-announced its second-quarter results before the opening bell. Although adjusted earnings and revenue missed analysts' forecasts, investors seemed most rattled by downbeat commentary from CEO Arvind Krishna.

In a letter to investors, Krishna conceded that the company had failed to "adapt and move quickly enough" as customers suddenly shifted their budgets to servers, storage, and memory products at the end of June in order to get ahead of price hikes.

"While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna wrote. "These conditions require our teams to execute perfectly, and this quarter we faltered."

The earnings warning put IBM shares on track for their largest single-day drop in the company's history. IBM was on pace to lose more than $60 billion in market capitalization on Tuesday.

Among the stocks comprising "synthetic IBM," IonQ was poised to snap a nine-day losing streak on Tuesday, climbing 0.8%, while HP Inc. notched an identical gain. Meanwhile, Accenture and SAP were dragged down by a broader slump in consulting and software, with both shedding roughly 2%.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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July 14, 2026 12:17 ET (16:17 GMT)

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