Shares of IBM (NYSE:IBM | IBM Price Prediction) are down 22% to $225.20 in Tuesday’s early trading, on pace for the stock’s worst single session since 1987. Strategist Mike Zaccardi noted that IBM shares fell 23% in a single session in October 1987, framing today’s move in rare historical company.
The catalyst is a preliminary Q2 2026 revenue and profit miss released this morning ahead of the full report on July 22. IBM CEO Arvind Krishna told investors “we faltered” and that “numerous large deals failed to close” as clients shifted spending toward supply-constrained infrastructure.
The broader market tells a different story. Meanwhile, the NASDAQ 100 is up 1.08% after June’s Consumer Price Index report showed consumer prices fell 0.4% month over month, the largest drop since April 2020, with annual inflation easing to 3.5% and core to 2.6%. Today’s software selloff looks sector and IBM specific rather than macro.
Preliminary Q2 Miss Sparks the Selloff
IBM reported preliminary Q2 2026 revenue of $17.2 billion, up 1%, versus the $17.86 billion consensus. Operating (non-GAAP) EPS came in at $2.93, below the $3.01 consensus, with GAAP EPS at $2.27.
Segment details show that the shortfall was concentrated. IBM’s Software segment rose 5% with Red Hat up 11%, and Consulting was roughly flat.
Krishna said clients redirected capex in the last weeks of June toward servers, storage, and memory to secure supply-constrained infrastructure ahead of expected price increases, a reprioritization whose magnitude IBM didn’t anticipate. He also cited cybersecurity distractions among enterprise buyers.
HSBC downgraded IBM stock to Reduce from Hold with a $191 price target, the clearest bear voice on the Street today. More bullish prior targets from Morgan Stanley and Oppenheimer preceded the warning and look likely to be revised.
Software Peers Feel the Ripple
The contagion is real but uneven this morning. Microsoft (NASDAQ:MSFT) shares are down 3% to $379.76, and ServiceNow (NYSE:NOW) shares are down 8% to $102.38. Salesforce and Intuit are also trading lower in sympathy.
The iShares Expanded Tech-Software Sector ETF (NYSEARCA:IGV) is trading down 4% to $89.31. IGV holds IBM alongside these names and isn’t leveraged, though its concentration in a handful of mega-cap software issuers means single-name shocks travel quickly through the fund.
The prediction markets echo the near-term stress. Polymarket is pricing a 0.95 probability that Microsoft stock closes lower today, while longer-dated markets still favor a recovery toward $360 to $405 by month-end. That split reads as acute fear rather than existential concern.
Bull and Bear Cases on IBM
The bull case leans on the parts of IBM that worked. Software growth held up, Distributed Infrastructure rose 37%, the best in reported history, and year to date free cash flow reached $4.8 billion. Management framed the slipped deals as deferred rather than lost.
The bear case is equally clear, though. Mainframe cyclicality is an issue, execution stumbled on large deals, and the capex reprioritization toward AI hardware could persist. HSBC’s $191 IBM price target implies meaningful downside from current levels.
The fair read is that this is partly an IBM-specific mainframe and execution stumble and partly a signal that AI infrastructure and memory buying is crowding out other IT budgets. IBM’s own software line grew, so this isn’t a broad software demand collapse. Traders are selling the scarier “AI eats software” interpretation regardless.
What to Watch Next
The full IBM earnings report and conference call arrive on July 22, and analyst revisions from Morgan Stanley, Oppenheimer, and others could reshape the setup between now and then. Polymarket currently prices only a 25.5% probability that IBM beats when the full report lands.
Investors can watch for whether Software and Red Hat momentum reasserts itself on the July 22 call, whether Krishna quantifies the slipped-deal pipeline, and whether the mainframe demand slump was truly a June air pocket. Given the size of today’s move, investors should consider keeping their position sizes modest until the full report clarifies segment trajectory.
For sector watchers, IGV and the reactions in software peers into the close could show whether today’s selloff was a one-day repricing or the start of a broader software derating.
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