Abstract

International Business Machines Corporation will report second-quarter 2026 results on July 22, 2026 Post-Mkt; the market now weighs a consensus revenue view near 17.86 billion US dollars against management’s preliminary update of 17.20 billion US dollars and looks for clarity on large-deal timing, margin resilience, and AI monetization.

Market Forecast

Consensus for the current quarter points to revenue of 17.86 billion US dollars, adjusted EPS of 3.02, and EBIT of 3.74 billion US dollars, implying year-over-year increases of 7.70%, 14.34%, and 19.17%, respectively. By contrast, the company’s preliminary update calls for revenue of 17.20 billion US dollars (up 1.31% year over year) and adjusted EPS of 2.93 (up 4.64% year over year), highlighting a gap to earlier external expectations; no company gross margin or net margin forecast has been provided.

IBM’s revenue mix last quarter was led by Software at 7.05 billion US dollars, followed by Consulting at 5.27 billion US dollars and Infrastructure at 3.33 billion US dollars, with Financing contributing 220.00 million US dollars and Other at 48.00 million US dollars. Within that mix, Software remains the most promising engine given scale and margin leverage; it delivered 7.05 billion US dollars last quarter and was most recently cited as growing 14% year over year in the 2025 fourth quarter, while the Consulting organization is positioned to convert AI-related bookings and delayed large deals as procurement cycles normalize.

Last Quarter Review

In the last reported quarter, International Business Machines Corporation generated approximately 15.92 billion US dollars of revenue, with a gross profit margin of 56.23%, GAAP net profit attributable to shareholders of 1.22 billion US dollars, a net profit margin of 7.64%, and adjusted EPS of 2.93, which increased 4.64% year over year.

A notable financial highlight was the maintenance of gross margin above 56%, supported by a high software mix and disciplined cost execution. On the business side, Software contributed 7.05 billion US dollars, Consulting 5.27 billion US dollars, and Infrastructure 3.33 billion US dollars; the most recently disclosed growth marker for Software was a 14% year-over-year increase in the 2025 fourth quarter, underscoring the segment’s ability to compound premium, recurring revenue.

Current Quarter Outlook

Main business: Software and Consulting revenue drivers

The near-term revenue trajectory hinges on whether large software and hybrid-cloud transactions that slipped late in the quarter can be closed and recognized on a timely basis. Management’s preliminary view highlighted closing delays in “numerous large deals,” which depressed the top line relative to earlier expectations; investors will look for evidence that those deals are contracted and moving through revenue in July and August rather than having been outright canceled. Because Software carries structurally higher gross margins than the rest of the portfolio, the pace of deal closure will meaningfully influence both revenue and margin prints for the quarter.

Consulting is positioned to convert pipeline in data, AI, and application modernization as client budgets reset following a period of heavy hardware procurement. Analyst commentary indicates that a short-term skew of budgets toward servers, storage, and memory to support AI workloads weighed on software outlays late in the period; as that rush normalizes, Consulting-led transformations can reaccumulate momentum and feed back into Software attach. A practical marker to watch is backlog conversion and the signings run-rate across data and AI, application modernization, and hybrid cloud transformation mandates; improvements here would support second-half acceleration in both Consulting revenue and Software cross-sell.

Pricing and consumption dynamics are also in focus. Software renewal cycles and incremental seat or capacity expansion are sensitive to budget availability after elevated hardware spending; however, uptake of automation, AIOps, and data platforms tends to demonstrate resilient retention and expansion in mission-critical use cases. If renewal quality remains solid and ramping AI projects push incremental platform adoption, IBM can defend gross margin even if top-line growth is lighter than earlier expected.

Most promising business: AI and automation platforms within Software

AI and automation platforms are central to the medium-term growth story and to margin expansion. The company recently updated its development platform “Bob” with multi-agent capabilities and automated workflows designed to modernize legacy systems and optimize compute consumption. This product evolution directly targets large opportunity pools in application maintenance, mainframe modernization, and enterprise workflow automation, where payback cases can be compelling and measurable. As these agents move from pilots to production, they should increase high-margin Software revenue while driving pull-through for Consulting services.

Management previously cited a generative AI “book of business” above 12.50 billion US dollars, suggesting healthy demand formation. The critical gating factor is revenue conversion timing: bookings must turn into recognized software subscription revenue and professional services revenue with disciplined delivery. Customers’ initial spend on AI-enabling infrastructure earlier this year has the potential to shift back toward software licenses and platform subscriptions in subsequent quarters as deployment focus moves from building to scaling. If that pattern emerges, Software’s revenue growth and mix can outpace the rest of the portfolio, sustaining gross margin near current levels or better.

While Infrastructure remains an important foundation, including the z17 and LinuxONE portfolio, the most leverage to higher gross margins and free-cash-flow yield sits in Software. The updated management tools, post-quantum security capabilities, and simplified infrastructure management are attractive, but the heavier lift to consensus hinges on demonstrating that AI and automation platforms are translating into secular increases in Software ARR and retention. Concrete metrics to watch include net expansion rates for core platforms, attach rates from Consulting-led AI projects, and the proportion of AI-related bookings flowing through Software rather than services.

What will move the stock this quarter

The first swing factor is top-line reconciliation vs. consensus following the preliminary update. Consensus entering the print implied revenue of 17.86 billion US dollars (+7.70% year over year) and adjusted EPS of 3.02 (+14.34% year over year), while management’s preliminary figures indicate 17.20 billion US dollars (+1.31% year over year) and 2.93 (+4.64% year over year). If delayed large deals close quickly and are visible in verbal color for July and August, investors could look through a light revenue quarter and defend valuation on second-half acceleration; if not, multiples can compress toward services-like peer ranges, particularly if software renewal quality shows any pressure.

The second catalyst is margin durability. With last quarter’s gross margin at 56.23% and net margin at 7.64%, investors want confirmation that mix effects from lower Infrastructure volumes and delayed software deals did not produce disproportionate operating deleverage. Operating expense control, delivery productivity in Consulting, and Software renewal economics will determine whether the adjusted EPS trajectory can stay within reach of the pre-update consensus. Commentary on pricing discipline, attach rates, and consumption trends across data and automation suites will be dissected for implications on second-half margins.

The third factor is the outlook. Earlier communications referenced full-year constant-currency revenue growth of more than 5% and a 1.00 billion US dollars increase in full-year free cash flow; the Street will look for reaffirmation or a recalibration. Because the budget skew toward AI hardware created a timing issue in late June, a constructive guide would point to deal closing visibility, improving Consulting signings, and accelerating Software ARR trends in the back half. Any incremental disclosure on AI platform adoption, multi-agent automation deployments, and cross-portfolio revenue synergy would support the case for reacceleration after a soft June exit.

Beyond the quarter, product and technology updates provide optionality but are not expected to materially impact near-term revenue. The company’s announcement of a sub-1 nm-class chip technology and the ongoing expansion of mainframe configurations are strategically important, yet investors will likely treat them as medium-term enablers rather than this-quarter revenue drivers. The more immediate stock reaction should track the balance between reported revenue/EPS, disclosed deal timing, and direction of full-year guidance. If execution evidence aligns with analysts’ expectations for second-half software acceleration, dips tied to the preliminary shortfall can find support.

Analyst Opinions

Bullish views predominate in recent previews and rating actions. By count, bullish opinions outweigh bearish ones by a wide margin, with positive calls from Bank of America, Barclays, JPMorgan, and Wedbush making up the majority view, against a smaller number of cautious or negative stances.

Bank of America expects International Business Machines Corporation to deliver a solid second quarter and to modestly raise its 2026 outlook, citing continued software momentum and early integration benefits from recent acquisitions. The firm also reiterated its Buy view, characterizing the shares as defensive given a high exposure to recurring sales, identifiable cost levers, a solid balance sheet, and relatively stable margins. This framing speaks directly to the questions investors have after the preliminary update: will delayed deals close, and can margins hold up if revenue is lighter? BofA’s stance implies confidence that slippages are timing-related and that software-led mix can preserve earnings power.

Barclays initiated coverage with an Overweight rating and a 350 US dollars price target, arguing that IBM has built a stable growth engine around a defensible software portfolio that should support higher growth and better margins over time. The note also highlights quantum computing as a meaningful longer-term option value. From a near-term perspective, this positive call reinforces the idea that valuation should be borne by Software’s recurring economics, not by transient quarterly noise. It places the burden of proof on demonstrating ARR expansion, platform adoption, and effective cross-sell, which investors will track closely in the July 22, 2026 release.

JPMorgan upgraded International Business Machines Corporation to Overweight, pointing to the prospect of software acceleration in the second half of 2026 after a deeper look at the software business. This view is consequential in the context of the preliminary update: if the primary issue is the timing of large deals and not a deterioration in demand, then a second-half catch-up is plausible and the upgrade is consistent with a reacceleration thesis. Investors will look for corroboration in signings commentary, backlog conversion, and pipeline quality across data and AI, automation, and hybrid cloud.

Wedbush, via analyst Daniel Ives, maintained a Buy with a 340 US dollars price target, emphasizing the multiyear opportunity in AI and automation. While the quarter’s preliminary figures were below earlier expectations, this call rests on the conviction that enterprise AI projects and automation platforms will scale from pilots to production in 2026, lifting both Software growth and margins. That aligns with product updates such as the multi-agent enhancements in Bob and supports a constructive perspective on ARR build. The linchpin is converting a 12.50 billion US dollars AI book of business into recognized Software revenue and services in the next several quarters.

The majority bullish camp converges on three themes. First, the gap between consensus and the preliminary update looks more like deal timing than demand erosion; if so, revenue can reaccelerate as contracts close and deploy. Second, mix remains favorable: Software’s scale and margin make it the engine for earnings resilience even if Infrastructure softness persists near term. Third, AI and automation remain central to the growth algorithm; practical deployments, agent-based workflows, and modernization mandates should increase Software ARR and Consulting utilization, particularly as infrastructure buildouts mature and budgets swing back to software.

The market will demand evidence. To validate the bullish case, management needs to show that the delayed transactions are closing early in the third quarter, that renewal quality remains robust, and that gross margin can stay near the mid-50s even on a slightly lighter revenue base. Investors will scrutinize signings, backlog, and attach metrics, along with any refined full-year targets for constant-currency revenue and free cash flow. If the print and guide support the analysts’ second-half acceleration view, the stock can re-rate back toward software-driven peer groups on the strength of ARR growth, cash conversion, and operating leverage.

On balance, the majority view remains constructive into July 22, 2026, with the caveat that management must bridge the gap between the preliminary top-line update and earlier consensus through clear evidence on deal timing, backlog conversion, and AI monetization. The set-up leaves the quarter finely balanced, but the preponderance of institutional commentary suggests investors are prepared to look through a short-term revenue miss if the pathway to second-half software acceleration is credible and margin discipline is intact.