International Business Machines Corp. (IBM) shares are headed for their worst week in over 58 years after the company announced preliminary second-quarter results earlier this week. IBM shares were down nearly 2% in Friday's pre-market trade, with the stock now down nearly 24% for the week. If IBM shares maintain their current levels, this will be the company's worst single-week decline since 1968. The sharp decline followed CEO Arvind Krishna's letter warning of weaker-than-expected performance tied to its mainframe business, prompting Wall Street analysts to slash price targets. The stock drop reflects investor concerns over delayed large deals and flat organic software growth in the near term.
Citi Cuts IBM Price Target to $255 From $375
Citi analyst Fatima Boolani cut her price target on IBM to $255 from $375 while maintaining a 'Buy' rating, according to TheFly. The 32% reduction came after the company warned of weaker-than-expected performance tied to its mainframe business. The firm believes IBM will not immediately recapture delayed mainframe deals and that its organic software business will remain largely flat in the near term.
JPMorgan Reduces Price Target to $250 From $291
JPMorgan reduced its price target to $250 from $291 while reiterating an 'Overweight' rating. The firm described IBM's mainframe-driven preannouncement as disappointing but argued that much of the downside is already reflected in the stock price. According to JPMorgan, IBM now trades at a discount to its sum-of-the-parts valuation, suggesting the market has largely priced in the incremental risks. The firm noted IBM has a $2 billion share repurchase authorization that has remained largely unused in recent years.
IBM CEO Attributes Q2 Shortfall to Mainframe Business Weakness
In a letter to investors accompanying the company's preliminary Q2 results, Krishna acknowledged that the quarter fell short of expectations, attributing the weakness primarily to its mainframe business. He said clients shifted capital spending toward servers, storage and memory purchases late in the quarter to secure supply-constrained infrastructure ahead of anticipated price increases, while rapidly evolving cybersecurity concerns also disrupted customer buying patterns. Those factors, combined with IBM's failure to close several large deals on schedule, hurt its Z mainframe business and the associated software stack, particularly Transaction Processing.
Krishna stated the company's teams "did not adapt and move quickly enough" to changing market conditions. "These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall," Krishna said.
Despite the setback, Krishna highlighted accelerating growth at Red Hat, strong performance from recent acquisitions including HashiCorp and Confluent, record growth in Distributed Infrastructure, continued momentum in AI-related consulting engagements and ongoing margin expansion driven by productivity initiatives.
IBM Announces $5 Billion Lightwell AI Initiative and Quantum Computing Investment
Krishna pointed to the launch of Lightwell, IBM's new $5 billion AI initiative aimed at helping enterprises address open-source software vulnerabilities. The company plans to invest more than $10 billion in quantum computing over the next five years.
Retail Sentiment on IBM Stocks Remains Extremely Bullish
Retail sentiment on Stocktwits around IBM trended in the 'extremely bullish' territory, with message volumes at 'extremely high' levels at the time of writing. IBM stock is down 26% year-to-date and 22% over the past 12 months. The S&P 500 ETF Trust (SPY) is up 20% over the past 12 months, while the Vanguard Total Stock Market Index Fund ETF (VTI) is up 21%. The iShares Semiconductor ETF (SOXX) is up 116% during this period, while the State Street Technology Select Sector SPDR ETF (XLK) is up 37%.
FAQ
What caused IBM stocks to drop nearly 24% this week?
IBM stocks dropped after the company announced preliminary second-quarter results showing weaker-than-expected performance tied to its mainframe business. CEO Arvind Krishna cited clients shifting capital spending toward servers and storage, cybersecurity concerns disrupting buying patterns, and the company's failure to close several large deals on schedule.
Why did Citi cut its price target on IBM stocks by 32%?
Citi analyst Fatima Boolani reduced the price target to $255 from $375 after IBM warned of mainframe business weakness. The firm believes IBM will not immediately recapture delayed mainframe deals and that its organic software business will remain largely flat in the near term.
What is IBM's Lightwell initiative?
Lightwell is IBM's new $5 billion AI initiative aimed at helping enterprises address open-source software vulnerabilities. IBM also plans to invest more than $10 billion in quantum computing over the next five years.
