IBM — 2026Q3 earnings
reported 2026-07-22
EPS $2.93 vs $2.93 est — miss
next session +0.4% (close 2026-07-22 → 2026-07-23)
Source
Press release ↗Summary
IBM's second quarter of 2026 (reported 22 July, after a pre-announcement) was the quarter management itself calls a miss, and the interesting part is where the shortfall was and was not. Software grew 5% to $7.8 billion and Distributed Infrastructure posted its best growth on record at 37%, while IBM Z fell 42% and pulled total Infrastructure down 7% to $3.8 billion. Full-year constant-currency revenue growth was cut to a four-to-five percent range, with free cash flow still expected up about $1 billion. The prepared remarks are unusually direct about cause: the CEO said the Software shortfall was limited to a capex-sensitive area of the portfolio, that about 80% of Software revenue is recurring and grew healthily, and that 'it comes down to execution. That is where we fell short in the second quarter.' The forward bet is orchestration and data - watsonx Orchestrate plus Red Hat - alongside a new open-source security subscription, Lightwell, and more than $10 billion committed to quantum over five years. Sourced from IBM's own investor site: the prepared remarks PDF and the 2Q26 earnings event page are both published by IBM at ibm.com.
Earnings call
Earnings call webcast ↗Review
From the report
A cut to full-year revenue growth with the damage concentrated in IBM Z, while Software grew 5% and Distributed Infrastructure grew 37%.
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Full-year constant-currency revenue growth guidance was set at four-to-five percent, with currency expected neutral to growth. show quote
“The company now expects full-year constant currency revenue growth in the range of four-to-five percent. At current foreign exchange rates, currency is expected to be neutral to growth for the year”
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Full-year free cash flow is still expected to increase by about $1 billion year over year. show quote
“Free cash flow: The company continues to expect full-year free cash flow to increase by about $1 billion year-over-year”
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The CFO acknowledged revenue headwinds late in the quarter and pointed at productivity, portfolio and free cash flow as the response. show quote
“Although we faced revenue headwinds late in the second quarter, we continued to focus on the fundamentals of our business, including driving productivity, strengthening our portfolio, and generating free cash flow”
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Software revenues were $7.8 billion, up 5 percent, with Hybrid Cloud (Red Hat) up 11 percent and Data up 19 percent. show quote
“Software — revenues of $7.8 billion, up 5 percent: – Hybrid Cloud (Red Hat) up 11 percent – Automation up 4 percent, up 3 percent at constant currency – Data up 19 percent, up 18 percent at constant currency”
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Infrastructure revenues were $3.8 billion, down 7 percent, with IBM Z down 42 percent while Distributed Infrastructure was up 37 percent. show quote
“Infrastructure — revenues of $3.8 billion, down 7 percent: – Hybrid Infrastructure down 10 percent • IBM Z down 42 percent • Distributed Infrastructure up 37 percent”
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Power and Storage grew at a record pace within Distributed Infrastructure, building an order backlog of nearly $500 million. show quote
“Within Distributed Infrastructure, Power and Storage grew at a record pace in the second quarter, now having built up an order backlog of nearly $500 million.”
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IBM committed to invest more than $10 billion in quantum over five years, targeting the first large-scale fault-tolerant quantum computer by 2029. show quote
“IBM will invest more than $10 billion in quantum over the next five years, and remains on track to deliver the first large-scale fault-tolerant quantum computer by 2029.”
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From the call
Management named execution, not demand, as the cause of the miss, and located the shortfall inside a capex-sensitive slice of Software rather than the recurring base.
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The CEO opened by conceding the quarter fell short of expectations, consistent with the earlier pre-announcement. show quote
“As you saw in our pre-announcement, our second-quarter performance fell short of expectations.”
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Management located the Software shortfall in a capex-sensitive area of the portfolio rather than the base business. show quote
“Our second quarter Software shortfall was limited to a capex-sensitive area of the portfolio.”
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The stated AI thesis is that value shifts to the orchestration and data layers as enterprises are pressed to earn returns on AI infrastructure spend. show quote
“Value will increasingly shift toward the orchestration and data layers, so that clients can optimize outcomes, cost, and governance across multiple models and agents and keep control of their proprietary data.”
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Distributed Infrastructure delivered its best quarter of revenue growth on record at 37%, which management ties to AI adoption and enterprise data growth. show quote
“Distributed Infrastructure just delivered its best quarter of revenue growth on record, growing 37%. We see this as an increasingly important growth vector for IBM, driven by AI adoption and the rapid growth of enterprise data.”
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Lightwell is sold as a subscription at $1 million per year for remediated or validated open source packages. show quote
“Clients can subscribe to Lightwell for $1 million per year to access open source packages that have been remediated or validated.”
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Management named execution as the failure point and said it has engaged clients on the transactions that slipped. show quote
“With the portfolio we have and the opportunities ahead, it comes down to execution. That is where we fell short in the second quarter. We have engaged with clients on the transactions that slipped and have a clear understanding of what needs to change.”
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Despite the Infrastructure decline, management said mainframe transaction share is intact, with IBM Z running over 70% of the world's transaction volume by value. show quote
“IBM Z runs over 70% of the world’s transaction volume in terms of value.”
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as of 2026-08-24