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NewsMacro

IBM falls 25%, worst day on record, after second-quarter earnings warning

IBM (IBM) is in focus after the company issued a second-quarter earnings warning that sent shares down 25% in a single session, the worst single-day decline on record for the stock. The chief executive attributed the shortfall to weakness in the software and infrastructure business, explaining that clients shifted spending toward hardware purchases during the quarter.

By Tomas ReyesMacro DeskJuly 20, 20262 min read
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Key takeaways

  • IBM shares fell 25% in a single session following a second-quarter earnings warning, the worst single-day decline on record for the stock.
  • The CEO attributed the shortfall to weakness in the software and infrastructure business as clients shifted spending toward hardware purchases.
  • The rotation occurred within IBM's existing customer base, compressing near-term revenue because software licenses and infrastructure contracts are the parts that renew and compound.
  • The warning came as a preannouncement before results close because the spending deferrals arrived concentrated in the same quarter.
  • Management gave no indication it expects the hardware-preference pattern to snap back, and that absence of a recovery signal weighed heavily on the market.

IBM (IBM) is in focus after the company issued a second-quarter earnings warning that sent shares down 25% in a single session, the worst single-day decline on record for the stock. The chief executive attributed the shortfall to weakness in the software and infrastructure business, explaining that clients shifted spending toward hardware purchases during the quarter.

The spending shift inside IBM's own customer base

The CEO's explanation points to a demand rotation that took place within IBM's existing client relationships. Customers did not disappear. They moved dollars. The problem for IBM is that software licenses and infrastructure contracts are the parts of its business that tend to renew and compound. Hardware orders do not carry the same forward revenue pull.

When a client delays or reduces software and infrastructure spending to fund hardware, it compresses IBM's near-term revenue and changes the shape of what the company can expect in subsequent quarters. The warning exists because those deferrals arrived in the same quarter, concentrated enough to force a preannouncement before results close.

Reading the tape

A 25% single-session decline on an earnings warning is outside the range of routine repricing. The market is not responding to a miss. It is responding to the inference that the hardware preference among clients may reflect a lasting reallocation of technology budgets rather than a temporary timing gap.

The CEO framed the issue around where clients chose to put money, with no indication, based on the sourced comments, that management expects the pattern to snap back. That absence of a clear recovery signal is the part of the preannouncement that carries the most weight for the setup.

What to watch

The full second-quarter earnings report is the next definitive event. Revenue by segment, split across software, infrastructure, and hardware, will show whether the demand rotation is stabilizing or continuing. Updated full-year guidance, if IBM provides it alongside results, will be the clearest indicator of how management is reading client spending into the back half of the year.

Related reading

About this story

Filed by the macro desk of MarketPR on July 20, 2026. Source: MarketPR. Indicative figures are not investment advice.

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Frequently asked

Why did IBM stock drop 25%?

IBM issued a second-quarter earnings warning citing weakness in its software and infrastructure business, which sent shares down 25% in a single session, the worst single-day decline on record for the stock.

What caused IBM's earnings shortfall?

The CEO said clients shifted spending toward hardware purchases and away from software licenses and infrastructure contracts, which compressed IBM's near-term revenue.

Why is the shift toward hardware a problem for IBM?

Software licenses and infrastructure contracts tend to renew and compound, providing forward revenue pull that hardware orders do not carry, so the rotation reduces both current and expected future revenue.

Is the drop just a reaction to an earnings miss?

No; the market is responding to the inference that clients' hardware preference may reflect a lasting reallocation of technology budgets rather than a temporary timing gap.

What should investors watch next?

The full second-quarter earnings report with revenue split across software, infrastructure, and hardware, along with any updated full-year guidance indicating how management reads client spending into the back half of the year.