International Business Machines Corporation (IBM) saw its shares rebound on Friday, closing at $214.19, a gain of 3.65%. The stock ended the week up 0.7%, though it remains roughly 26% below its level on July 13, the last trading day before the company issued its earnings warning.
The company recently reduced its 2026 revenue growth forecast to a range of 4% to 5%, while reaffirming its full-year free cash flow target. This has placed intense focus on the second-half cash generation necessary to meet that goal.
IBM reported free cash flow of $4.8 billion for the first half of 2026, unchanged from the same period a year earlier. With a full-year target of approximately $15.7 billion—implying growth of about $1 billion over 2025's $14.7 billion—the company must generate roughly $10.9 billion in the second half. That represents a nearly 10% increase over the $9.9 billion generated in the second half of 2025.
Second-quarter revenue came in at $17.16 billion, up just 1% year over year and below analyst expectations of $17.58 billion. Software revenue rose 5% to $7.76 billion, missing forecasts of $7.88 billion, while Transaction Processing revenue fell 8%. Infrastructure revenue declined 7% to $3.84 billion, with IBM Z mainframe sales plunging 42%, which CFO James Kavanaugh said reduced overall company growth by more than five percentage points.
CEO Arvind Krishna attributed the slowdown to delays in large capital-expenditure deals, but noted that about one-third of those postponed deals have since closed. He described the demand as "deferred, not destroyed," a claim that will need validation through third-quarter billings and cash receipts.
CFRA analyst Brooks Idlet pointed to "specific IBM-related hardware issues" as the cause of the miss, adding that it does not indicate broader softness in the software sector.
IBM's balance sheet faces additional pressure. The company spent $10.5 billion on acquisitions in the first half and ended June with $8.2 billion in cash and securities, while total debt stood at $62 billion. Last week, IBM agreed to acquire privately held HRL Laboratories, though the deal's value was not disclosed, leaving investors uncertain about its short-term balance-sheet impact.
Friday's rally outpaced the S&P 500, which was mostly unchanged. However, all major U.S. indexes ended the week lower, with the Nasdaq falling 2.1%. In the week ahead, investors will watch for changes in analyst estimates and confirmation that additional postponed deals have been completed.
Risks remain elevated. Further deal delays could jeopardize the cash-flow bridge, as could underperformance in mainframe-related software or additional acquisition spending. The key figure to monitor remains the approximately $10.9 billion in required second-half free cash flow.
