IBM Sinks 7% as CEO’s AI Spending Caution Overshadows Earnings Beat; Accenture and Infosys Ease Back

A quarter that topped Wall Street forecasts on revenue and adjusted earnings is drawing sellers into International Business Machines (NYSE:IBM | IBM Price Prediction), as an unchanged full-year outlook and pointed artificial intelligence (AI) commentary from the chief executive set the tone. IBM stock is down 7% to $233.50 in morning trading.

Today’s selling pressure is powerful in the technology sector. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 0.9% on AI spending worries, while the iShares U.S. Technology ETF (NYSEARCA:IYW) is down 2%.

Chief executive Arvind Krishna delivered that commentary after IBM reported third-quarter 2026 results on October 21. The company sells the software, mainframes and consulting companies use to implement AI, so his caution reaches across information technology services.

Earnings Beat Collides With an Unchanged Revenue Forecast

IBM’s Q3 2026 revenue reached $17.1 billion, ahead of the $16.84 billion estimate. The company’s adjusted earnings per share (EPS) of $2.95 also topped the $2.87 consensus.

Software revenue at IBM rose 8% to $7.8 billion, accelerating from the prior quarter on 11% growth at Red Hat. That strength didn’t change the full-year view, as IBM kept its constant-currency revenue growth forecast at 4% to 5%. The unchanged forecast disappointed investors who had hoped for an increase.

Krishna Flags AI Spending With No Real Return

On IBM’s conference call, Krishna stated that enterprise customers are becoming “a lot more cognizant and a lot more aware of what is the true ROI of all of their AI spend.” Clients are also nervous about “some of the AI spending completely out of control with no real return,” he added.

Krishna framed that shift as an opening, since clients want help redesigning workflows and controlling token spending: “That is the tailwind for us.” The steep drop in IBM stock signals that the warning is driving the reaction.

IBM’s chief executive also recommended companies to “pick a few” AI initiatives and scale them, warning against running “100 little experiments” that never get enough investment. Riding an AI mania is fine as long as you plan the exit, something we covered in a free handbook on both halves of the trade.

Mainframe revenue from IBM Z fell 20% as the product cycle matured, while quarterly free cash flow reached $3.03 billion and management raised its full-year target for that metric to an increase of more than $1 billion. IBM’s consulting business grew just 0.2%, a soft spot close to the work Krishna described.

Accenture and Infosys Post Milder Declines

Meanwhile, Accenture (NYSE:ACN) shares are down 0.5% to $239, a far smaller drop than IBM’s. Infosys (NYSE:INFY) stock is down 2% to $12.44, steeper than Accenture but well short of the slide in IBM stock.

Both of these companies sell the consulting work Krishna described. So, their softer declines suggest that the damage is mostly contained to IBM stock.

IBM’s Software Outlook Faces Its Next Test

IBM’s fourth-quarter results will test its software growth. Management expects full-year software expansion of 7% to 8%, with 7% as its revised base case, and double-digit Red Hat gains in the fourth quarter.

IBM beat on both lines, accelerated software growth and raised its cash flow goal. Against that are an unchanged revenue forecast, a shrinking mainframe line and total debt of $63.8 billion, up $2.6 billion year to date. Investors considering IBM stock exposure should size their positions carefully given that mix.

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