IBM has lowered its annual revenue growth forecast, citing a shift in spending by institutional clients from software and mainframe computers to AI-centric data centre gear.
This warning comes just days after the company failed to meet expectations for profit and revenue in the second quarter, which ended on June 30.
Shift in Spending
Although clients prioritized AI spending in the quarter, officials sought to reassure shareholders that they do not plan to move away from mainframes in the long term.
Shares of the Armonk, New York-based company fell in extended trading, having risen 2% earlier.
CEO’s Comments
Last week, CEO Arvind Krishna said IBM had ‘missed’ and ‘lost some big deals’ as it adapted to the situation.
This led to a 25% drop in the company’s shares, the largest single-day decline in over a century.
On the earnings conference call, Krishna said, ‘Most of the work we didn’t get done in the second quarter was large capex deals with large clients.’
He added that about one-third of those deals were completed in the current third quarter.
Krishna said, ‘Most of the demand is being delayed, not cancelled.’
Impact on AI Hardware
IBM’s forecast has highlighted the scramble for AI hardware.
It has raised concerns among investors that companies rushing to secure rare servers, chips, and networking gear may cut spending in the broader software sector.
IBM now expects revenue growth of 4-5% in 2026, down from a previous forecast of more than 5%.
The midpoint of the forecast is below the average analyst estimate of 4.8% growth and revenue of $70.77 billion, according to data compiled by LSEG.
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