IBM shares fall after infrastructure revenue misses expectations
IBM said Q2 infrastructure revenue fell 7% as customers shifted capex toward compute capacity, sending its stock down more than 25%.
By Dominic Okoye · Staff Writer
· 3 min read
IBM shares fell more than 25% Tuesday after CEO Arvind Krishna told investors that preliminary Q2 2026 infrastructure revenue declined 7%, a steeper drop than the company had expected. IBM did not disclose dollar revenue for the segment in the letter, but the warning matters for enterprise infrastructure suppliers because it points to customers protecting compute capacity for AI workloads while delaying other upgrade projects.
Krishna attributed the decline partly to weakness in IBM Z, the company’s mainframe business. The comparison was difficult because IBM had strong infrastructure performance in Q2 2025, when it introduced the z17 series, according to Krishna’s investor letter.
The larger issue, according to IBM, was a change in customer capital spending. Krishna said clients are putting more budget into servers, storage and memory as they try to secure compute power during supply constraints. IBM had already factored some supply-chain pressure into its outlook, he said, but not the extent of the budget shift.
That is a blunt signal for vendors selling modernization programs around legacy infrastructure. Enterprises may still need those systems refreshed, but the immediate spending priority is capacity that supports new workloads, particularly AI. The company did not say how much of the 7% decline came from IBM Z versus broader customer spending changes, and it did not quantify how much revenue it expects to recover later in the year.
Compute economics are crowding out upgrades
Ashish Nadkarni, group vice president, general manager and global domain lead of enterprise infrastructure at IDC, told CIO Dive that IBM’s explanation fits a broader pattern in the market. He said enterprises are focusing on the cost and yield of compute across categories including quantum computing, mainframes and ordinary client devices.
Nadkarni said companies are under pressure to justify the economics of the compute they already have. If CIOs can extend the useful life of existing infrastructure, many are choosing to do that while redirecting new spending toward AI-centered initiatives, he told CIO Dive.
That reprioritization does not mean infrastructure demand has disappeared. Nadkarni characterized the market’s reaction to Krishna’s warning as somewhat excessive, telling CIO Dive that IBM is not an outlier and that infrastructure buying is cyclical. More data and more compute eventually require more infrastructure, he said.
The warning also contrasts with IBM’s prior quarter. In Q1, IBM reported infrastructure revenue growth of 15% and broader revenue growth across its segments, according to CIO Dive. The Q2 reversal suggests that even large incumbents with sticky enterprise accounts are exposed when customers move budgets toward scarce compute inputs and away from broader infrastructure refreshes.
For IBM, the open question is whether the Q2 shortfall is a temporary digestion period after the z17 cycle or a sign that customers are slowing other hardware commitments while AI projects absorb capital. Krishna’s letter identified the spending shift, but it did not provide a full-year revision or segment-level detail beyond the preliminary 7% infrastructure decline.
This story draws on original reporting from CIO Dive.
