IBM Downgraded by Oppenheimer on Delayed Software Growth Prospects

Oppenheimer downgraded International Business Machines Corp. (IBM) to a 'Perform' rating on Wednesday, removing its $350 price target for the stock. The move follows IBM's negative pre-announcement of its second-quarter 2026 financial results, which fell short of analyst expectations ahead of its scheduled July 22 earnings call.

Dissecting the Shortfall

In a note to clients, Oppenheimer analyst Param Singh highlighted that IBM's preliminary results missed both the firm's and consensus estimates across every business segment. The company now expects total Q2 revenue to be $17.2 billion, representing just 1% year-over-year growth.

Key performance metrics from the pre-announcement include:

• Software Revenue: Grew 5% year-over-year, significantly below Oppenheimer's estimate of 12% growth.
• Infrastructure Revenue: Declined 7% year-over-year, a steeper drop than the firm's projected 5% decline.
• Consulting Revenue: Remained flat year-over-year, slightly under the 1% growth forecast.

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IBM management attributed the weaker-than-expected performance to several factors, including softness in its Transaction Processing software, large deals slipping past the quarter's end, and a shift in customer buying behavior toward servers and storage amid memory cost pressures.

Analyst Outlook

Oppenheimer believes the investment case for IBM, which hinges on strong software growth, will now take longer to come to fruition. "The bull thesis will take longer to materialize, and we anticipate the stock will be range bound near term,” Singh wrote in the note.

The firm stated it will be "difficult for IBM to get 'double-digit' CC growth in software for CY26/27" without either making additional large acquisitions or seeing a substantial catch-up in the deals that were delayed. Oppenheimer also noted that while the customer spending shift to hardware could benefit server and storage providers, it presents a near-term risk for other infrastructure software vendors facing similar IT budget constraints.