IBM announced quarterly results missing revenue and profit estimates, attributing the shortfall to customers reallocating budgets from mainframes and traditional software toward AI-related infrastructure. This shift led IBM to lower its full-year revenue growth forecast, signaling short-term disruption in its core businesses.
- IBM’s 2026 revenue growth forecast cut from over 5% to 4-5% at constant currency
- Mainframe hardware revenue dropped 42%, impacting overall infrastructure sales
- AI infrastructure demand drives part of deferred spending and consulting backlog
Market signal
IBM’s quarterly results highlight a marked transition in enterprise IT spending, with customers prioritizing AI infrastructure over traditional mainframe and software licenses. This shift caused notable revenue misses, with total revenue barely rising and software growth largely flat outside acquisitions.
The mainframe business, historically a reliable revenue pillar, suffered a substantial 42% decline in hardware sales compared to the previous year’s strong z17 launch. Although infrastructure revenue declined 7% overall, other segments like hybrid cloud software and consulting services, particularly those tied to generative AI, showed measured growth, underscoring evolving customer priorities.
Operator impact
For operators and buyers, IBM’s report signals a pivot in vendor engagements toward AI-driven infrastructure, causing delays in mainframe-related spending cycles. Enterprises currently investing in legacy mainframe solutions may encounter longer procurement timelines or shifting contract terms as budget allocations adjust.
Despite setbacks in mainframe sales, IBM insists customer loyalty remains intact, with ongoing capacity additions for AI, analytics, and Linux workloads on mainframe platforms. This suggests operators should maintain strategic flexibility when negotiating hardware and software upgrades, anticipating a mixed demand environment across traditional and emerging technologies.
What to watch next
Tracking how quickly deferred mainframe and software deals recover in the upcoming quarters will be crucial for assessing IBM’s ability to rebound from this spending disruption. IBM’s reported early third-quarter deal closures could indicate a gradual normalization of purchasing patterns.
Additionally, monitoring the growth trajectory of IBM’s AI infrastructure and hybrid cloud offerings will provide insight into how effectively the company leverages these segments to offset traditional revenue pressures. The balance between these business areas will shape vendor strategies and customer procurement choices in the near term.