International Business Machines Corporation (NYSE:IBM) saw its shares trade near $205.79 ahead of Thursday's opening bell, following a significant reduction in its revenue outlook for 2026. The company maintained its cash flow forecast, drawing increased attention to its free cash flow yield, which has widened to approximately 8.1%.
IBM stock has declined 29.1% from its July 13 closing price, erasing roughly $79.4 billion in market capitalization. The decline accelerated after the company reported second-quarter results that missed analyst expectations on both revenue and earnings.
The technology giant now projects constant-currency revenue growth of 4% to 5% for 2026, down from its earlier forecast of more than 5%. The midpoint of this revised range falls below the average analyst estimate of 4.8%. Despite the weaker revenue outlook, IBM maintained its free cash flow forecast of approximately $15.7 billion for the year, up from $14.7 billion in 2025.
Second-quarter revenue came in at $17.16 billion, a 1% increase year-over-year but below the $17.58 billion analysts had projected. Adjusted earnings per share of $2.93 also missed the consensus estimate of $2.97. Performance varied across segments, with software sales rising 5%, including an 11% gain at Red Hat. Data revenue climbed 19%, while transaction processing declined 8%.
The main drag was mainframe revenue. IBM Z sales plunged 42% year-over-year, though distributed infrastructure grew 37%. Chief Executive Arvind Krishna noted that one-third of outstanding sizable deals were finalized in the third quarter, stating, “A lot of the demand is deferred, not destroyed.”
Peer indicator ServiceNow (NYSE:NOW) raised its yearly subscription-revenue outlook after a strong performance, with CEO Bill McDermott reporting no change in the sales cycle amid increased investment in hardware and AI. This contrast has led some analysts to view IBM’s challenges as company-specific. Brooks Idlet, an analyst at CFRA, described the issues as “specific IBM-related hardware problems,” which lessens support for the argument of a widespread software slowdown.
Risks persist for IBM. Free cash flow for the first half of the year was unchanged at $4.8 billion. The company reported cash holdings of $8.2 billion against $62 billion in debt, following $10.5 billion in acquisitions. The implied free cash flow yield of 8.1% compares with 5.8% at the July 13 close, reflecting a 2.4 percentage point expansion. The price-to-free-cash-flow multiple has compressed from 17.3 times to 12.3 times.
The stock’s 25.2% plunge on July 14 marked its steepest single-day decline in over a century. Shares ended Wednesday’s session near their 52-week low of $204.44. IBM is scheduled to report its next earnings on October 21, with investors focusing on deal conversion and cash generation in the coming weeks.
