While International Business Machines Corp. (NYSE:IBM) reported a second-quarter revenue shortfall due to delayed software agreements, market experts and company executives remain optimistic about the long-term outlook.

Michael Lee, the Founder of Michael Lee Strategy, characterized the recent earnings miss as a mere “temporary speed bump,” an assessment directly bolstered by IBM CEO Arvind Krishna’s revelation that roughly a third of those delayed transactions were successfully finalized in the first weeks of July.

The ‘Speed Bump’ in AI Infrastructure

IBM reported second-quarter revenue of $17.16 billion, technically beating the revised consensus estimate of $16.86 billion. However, performance still fell short of initial expectations and prompted a pre-earnings warning, posting just 1% year-over-year revenue growth.

Management attributed this to a late-quarter shift in client spending priorities, explaining that “tens of large deals” failed to close as enterprises redirected capital to secure supply-constrained hardware.

Lee told Fox Business that the broader technology sector is experiencing a historic infrastructure buildout, which is inherently creating financial bottlenecks for enterprise budgets.

“The cost of memory and servers and data centers and compute is skyrocketing,” Lee explained. “I think what you have with IBM is kind of a temporary speed bump that’s a result of some of these prices for different parts of that supply chain getting completely out of whack.”

Closing the Gap in the Third Quarter

IBM CEO emphasized that these massive software agreements were not lost to competitors, but delayed due to temporary budget compression.

“We have been very pleased to see that about a third of those have already closed,” Krishna stated. He explained that IBM typically expects two-thirds to three-quarters of slipped deals to close over six months. The rapid turnaround provides IBM with “a good indication—that this was deferral and not destruction.”

Maintaining Financial Targets

Despite the quarterly revenue stumble, IBM is holding firm on its core profitability metrics, maintaining its expectation to grow full-year free cash flow by about $1 billion.

While full-year revenue growth guidance was adjusted to a range of 4% to 5%, AI demand continues to accelerate. CFO James Kavanaugh highlighted that generative AI represented “about 50% of our signings in the quarter” and now comprises over 30% of IBM’s consulting backlog.

A Weight on the DOW 30

The sudden shift in enterprise spending has broader market implications, given IBM’s influence on major indices. Dominari Securities CEO Kyle Wool noted that the company’s aggressive investments to match competitors in the artificial intelligence race are currently weighing down the market.

“IBM is a big drag on the DOW 30 right now,” Wool observed, explaining that the price-weighted nature of the Dow Jones Industrial Average amplifies the impact of the stock’s plunge.

“I think they’re spending a lot of money, trying to catch up with the other players,” he added, pointing to the massive capital expenditures tech companies are making to compete with giants like Meta Platforms Inc. (NASDAQ:META) and Google-parent Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL).

How Has IBM Performed In 2026?

IBM shares were down 30.53% year-to-date, 18.42% over the last month, and lower by 27.02% over the year. It closed 2.25% lower at $205.77 per share on Wednesday, and it was 0.03% higher in overnight trading.

Benzinga’s Edge Stock Rankings indicate that IBM maintains a weak price trend in the short, long, and medium terms, with a solid quality score.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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