IBM's stock tumbled 17% in pre-market trading on Tuesday, following the release of disappointing preliminary second-quarter financial results and a significant analyst downgrade.
The technology giant reported revenue growth of just 1% year-over-year to $17.2 billion, with its Infrastructure segment declining 7%. The company's GAAP diluted earnings per share fell 2% to $2.27, missing expectations. In a letter to investors, CEO Arvind Krishna acknowledged that performance was "worse than our expectations," citing client spending shifts toward supply-constrained hardware and industry-wide cybersecurity concerns that distracted from deal closures.
Adding to the negative sentiment, HSBC downgraded IBM to "Reduce" from "Hold" and slashed its price target to $191 from $231. Furthermore, market concerns were amplified by reports that Starbucks is developing AI-powered internal software tools to replace certain IBM applications, potentially signaling a broader threat to IBM's enterprise software and consulting business as AI lowers development barriers.