Thinking Through Negative Q2 Pre + CEO Letter to Investors

Research evidence excerpt

Thinking Through Negative Q2 Pre + CEO Letter to Investors

Flash Note Technology | IT Services

July 14, 2026

International Business Machines Amit Daryanani Irvin Liu 415-800-0185 415-800-0183

Corporation amit.daryanani@evercoreisi.com irvin.liu@evercoreisi.com

IBM | $290.23 Hannah Liu Victor Santiago

212-812-2905 212-653-9014

Outperform | Target Price/Base Case: $310.00 hannah.liu@evercoreISI.com Victor.Santiago@evercoreISI.com

Company Update

ALL YOU NEED TO KNOW: Earlier this morning before market open, IBM negatively preannounced Q2 results reporting

preliminary revenue/EPS of $17.2B/$2.93 vs. Street at $17.9B/$3.01. Management attributed the top line/profit shortfall to worse

than expected mainframe performance across infrastructure (z systems) and software (Transaction Processing) as IBM’s clients

shifted IT/capex budgets towards servers, storage, and memory purchases to secure supply-constrained systems/components

ahead of price increases in addition to the prioritization of cybersecurity due to evolving threats from AI. As a result, IBM’s

Infrastructure segment revenue declined -7% y/y (vs. street expectations of down -3%) and Software grew +5% y/y (vs. street

expectations of ~10% growth). Worth noting that weakness appears to be concentrated toward mainframe/TP; other key businesses

such as RHT (growth accelerated to +11% y/y at cc despite more difficult y/y compares), HashiCorp, and Confluent delivered strong

performance. IBM also called out strong growth in Distributed Infrastructure (+37% y/y) driven by POWER and storage. Net/net:

IBM stock is trading down >20% in the pre-market in light of today’s development. Although the preliminary results are below street,

weakness is more concentrated toward mainframe/mainframe-related businesses.