NEW YORK, April 23, 2026 – International Business Machines Corporation (IBM) saw its shares drop 9.6% to $227.72 in Thursday afternoon trading, even after the technology giant reported first-quarter earnings that surpassed Wall Street expectations. The decline was driven by a slowdown in software and consulting revenue growth, which reignited fears among investors that artificial intelligence may be cannibalizing traditional enterprise-software businesses rather than boosting them.
IBM reported revenue of $15.92 billion for the quarter ended March 31, a 9% increase year-over-year, topping the LSEG consensus estimate of $15.62 billion. Adjusted earnings per share came in at $1.91, above the forecast of $1.81. However, revenue growth cooled from 12.2% in the previous quarter, and on a constant-currency basis, consulting revenue inched up just 1%, while software revenue rose 8%.
The selloff quickly spread to other major software firms, with ServiceNow plunging nearly 15%, Microsoft slipping 2.7%, and Adobe falling 3%. In contrast, chip stocks gained ground, led by Texas Instruments, which provided a bullish outlook. The divergence highlights a growing split in the tech sector, as UBS strategist Kiran Ganesh noted, “There is a lot bigger range of outcomes.”
IBM’s CEO Arvind Krishna characterized the quarter as “a strong start to the year,” reiterating that “AI continues to be a tailwind for our global business.” The company maintained its full-year forecast for constant-currency revenue growth of over 5% and an additional $1 billion in free cash flow. CFO James Kavanaugh told Reuters that generative AI applied to mainframe modernization is actually strengthening IBM’s mainframe portfolio, noting that clients using the watsonx Code Assistant for Z are expanding mainframe capacity roughly three times faster than those not using it.
Despite these assurances, investors remained unconvinced. CFRA analyst Brooks Idlet said in a note that “we do not think Q1’s results validated those fears” about AI disruption, but the shares still fell, reflecting disappointment with the pace of growth in software and consulting. IBM’s software division, which includes Red Hat and watsonx, posted an 11.3% gain, while infrastructure sales climbed 15%, with IBM Z revenue surging 51%. Data revenue increased 19%, and Red Hat rose 13% on a reported basis. Consulting revenue, however, was less impressive, up 4% as reported and only 1% on a constant-currency basis.
The company raised its quarterly dividend to $1.69 per share, marking the 31st consecutive year of increases. During the first quarter, IBM returned $1.6 billion to shareholders through dividends. As of March 31, the company held $11.8 billion in cash, restricted cash, and marketable securities.
Looking ahead, IBM faces the risk of investor patience wearing thin if growth does not accelerate. While CEO Krishna noted that Middle East events “didn’t impact us in the first quarter,” the company’s filing flagged that softer client spending or missed innovation could weigh on performance. Investors are still digesting whether products from Anthropic or similar players could begin to erode IBM’s software, services, and COBOL-related modernization business.
