The IBM (IBM) turnaround just hit a major speed bump.
IBM stock fell 24% in early trading after an unexpected pre-earnings warning from the company.
The tech giant’s stock is poised to have its worst day ever, dating back to 1961, strategist Mike Zaccardi pointed out on X. The stock lost 23% in a single session in October 1987, he said.
The numbers: IBM sees second quarter sales of $17.2 billion versus analyst estimates of $17.85 billion. Non-GAAP earnings are expected to be $2.93 compared to estimates of $3.02.
What’s behind the move: IBM CEO Arvind Krishna had this to say in a letter to investors on the shortfall:
“When we discussed our expectations with you in April, we noted that we would be wrapping on the launch of z17 in the second quarter. Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter.
“What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack, primarily in Transaction Processing. In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. This dynamic impacted client buying patterns. While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization. In addition, clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter.”
Several Wall Street sell-side analysts have begun to weigh in on the warning. Here are a few comments that have left an impression:
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Citi analyst Fatima Boolani: “Bottom line, these disappointing results stand to perpetuate ‘AI-Loser’ fears.”
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HSBC analyst Neil Churchill: “Downgrade to Reduce: Prefer synthetic IBM to the real one.”
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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