IBM’s worst day on Wall Street just got added to the record books — and it wasn’t pretty.
International Business Machines Corporation, IBM
The stock plunged 25% on Tuesday after IBM issued a rare pre-announcement warning that its Q2 results would miss targets. It was the company’s steepest single-day drop ever, wiping out nearly $70 billion in market value. The stock had been trading at an all-time high as recently as June 2, when it fetched over 25 times forward earnings — above the S&P 500’s 21.52 multiple. By Wednesday’s close, that had fallen to 16.54 times.
The pre-announcement itself caught analysts off guard. IBM’s last pre-announcement came in October 2008 during the global financial crisis. This time, there was no systemic crisis to blame — just IBM.
IBM’s infrastructure division took the hardest hit. Revenue there fell 7%, faster and harder than the company had anticipated. Fewer clients bought mainframe hardware, and those that did spent less on the high-margin software that sits on top of it — the kind used for banking and credit card payment processing.
CEO Arvind Krishna didn’t sugarcoat it. In a letter to shareholders, he wrote that IBM “did not adapt and move quickly enough,” and that large deals missed their expected close dates, driving the bulk of the shortfall.
Software revenue grew just 5% — well below Wall Street’s expectations and sharply under Oppenheimer’s 12% estimate. The firm, which downgraded the stock Wednesday, is now questioning whether IBM can hit its target of double-digit software growth through 2027.
Morgan Stanley had gone into earnings expecting upside in both infrastructure and software. Mizuho’s Dan O’Regan put it plainly: “The stock had become a crowded AI infrastructure winner and was trading near all-time highs, so any sign of execution issues was going to get punished.”
Beyond the quarterly miss, a longer-term concern is taking shape. Back in February, AI startup Anthropic unveiled a COBOL modernization tool within its Claude Code product. COBOL is the decades-old programming language that still powers IBM mainframe systems at major banks and financial institutions.
When that news broke, IBM stock dropped 13% in a single day. IBM pushed back, arguing that rewriting code is different from migrating the complex hardware infrastructure built around it. That argument has held — for now.
For decades, IBM’s mainframe business was protected by the sheer cost and complexity of moving away from it. AI tools that simplify that process could chip away at that moat.
Wall Street analysts currently have a Moderate Buy consensus on IBM, with 12 Buys, five Holds, and one Sell over the past three months. The average 12-month price target sits at $298.18, implying roughly 36% upside from current levels.
IBM is down an additional 2.9% in pre-market trading as of Thursday.
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