A 3.74% Friday gain at €188.38 might look like the start of a recovery for IBM, but it barely scratches the surface of a month that saw the stock shed 18.63% of its value. The bounce comes after the worst single trading day in the company’s history on July 14, when shares cratered 25% on preliminary second-quarter numbers that missed across the board. Adjusted earnings of $2.93 per share fell short of the $3.01 consensus, while revenue of $17.2 billion trailed expectations of $17.86 billion.
The full quarterly report, released on July 22, confirmed the damage. IBM posted $17.16 billion in revenue, a meager 1% year-over-year increase, as the infrastructure segment slumped 7% to $3.84 billion. The culprit was a 42% collapse in Z-mainframe sales, which management attributed to what it calls an “AI crowding-out” effect. Corporate customers, it said, redirected IT budgets toward GPU-heavy hardware and high-performance memory late in the quarter, deferring mainframe upgrades.
CEO Arvind Krishna offered a crucial caveat: roughly one-third of the deals pushed out of the second quarter were already closed in July. That framing suggests a timing mismatch rather than a structural loss of business, even if it forced IBM to trim its full-year currency-adjusted revenue growth forecast to between 4% and 5%, down from a prior target above 5%. Finance chief Kavanaugh pushed back harder, telling analysts the company sees “no evidence that customers are walking away from the mainframe” and expects “significant strength in that program in the second half.”
Despite the revenue disappointment and a year-to-date share price decline of 27.52%, IBM’s financial foundation remains intact. The company reaffirmed its 2026 free cash flow target, projecting an increase of roughly $1 billion from the prior year. With a market capitalization of €170.04 billion and annualized volatility near 85%, that cash flow stability is no small feat. The software and consulting segments, which grew 5% to $7.76 billion, are acting as a buffer while the cyclical hardware business takes a breather.
Chart watchers see tentative signs of a floor forming. After hitting a 52-week low of €175.14 just two days before the Friday rebound, the stock has recovered 7.56% from that trough. The relative strength index sits at 35.5, hovering near oversold territory — a level that historically precedes technical stabilization. Yet the stock remains deeply entrenched in bearish territory, trading well below both its 50-day moving average of €228.64 and its 200-day average of €233.84.
Should investors sell immediately? Or is it worth buying IBM?
The Friday rally may owe more to short covering than fresh conviction buying. After a 25% single-day rout and a cumulative 35.67% decline from the June high of €292.85, oversold conditions were ripe for a reflexive bounce. But the broader trend lines remain unbroken: the stock is still 27.52% off its 52-week peak, and the volatility regime suggests sharp reversals in either direction are the norm.
Analyst sentiment has fractured in the aftermath. The average price target of €231.11 implies 22.7% upside from Friday’s close, a gap that value-oriented investors might find tempting. But the range of opinions is unusually wide — Argus slashed its target while other firms held steady — reflecting genuine uncertainty about near-term execution. IBM has looked “cheap” multiple times during this selloff without finding durable support.
Meanwhile, the company is placing a long-term bet beyond its mainframe legacy. On July 23, IBM signed a binding agreement to acquire HRL Laboratories, a research outfit jointly owned by Boeing and General Motors that specializes in silicon-spin qubits. The deal, expected to close by the end of the third quarter of 2026, is designed to accelerate IBM’s quantum computing roadmap toward “Quantum Starling,” a fault-tolerant system slated for 2029. It’s a strategic pivot that underscores management’s focus on next-generation technology, even as the core hardware business takes a pause.
For now, the narrative hinges on whether those delayed mainframe deals are truly just delayed — or whether the AI crowding-out effect signals a more permanent shift in enterprise spending. The July bounce offers a moment of relief, but with the stock still 20% below both key moving averages and volatility running hot, the path to recovery looks more like a patient grind than a swift reversal.
Ad
IBM Stock: Buy or Sell?! New IBM Analysis from July 25 delivers the answer:
The latest IBM figures speak for themselves: Urgent action needed for IBM investors. Is it worth buying or should you sell? Find out what to do now in the current free analysis from July 25.
IBM: Buy or sell? Read more here...
