IBM’s Earnings Day Arrives Amid Product Rollouts, Analyst Doubts, and Law Firm Inquiries

IBM's Q2 revenue miss triggers 25% stock crash, analyst downgrades, and law firm investigations. CEO cites shift to AI spending; breakup speculation resurfaces.

When IBM releases its official second-quarter results after the bell on Wednesday, July 22, the narrative will extend far beyond the numbers. A $68 billion plunge in market value, a wave of analyst downgrades, and active investigations by several US law firms have turned what would normally be a routine earnings call into a high-stakes assessment of the company’s strategic direction.

The trouble began on July 14, when preliminary figures showed revenue of $17.2 billion — a mere 1% year-over-year increase but well below the consensus estimate of roughly $17.86 billion. Adjusted earnings per share of $2.93 also missed the expected $3.01. The stock cratered more than 25% in a single session, its worst one-day loss in decades. CEO Arvind Krishna acknowledged the company had “stumbled,” blaming a shift in customer spending away from software and mainframes toward AI servers and storage.

At Monday’s close, the shares were trading at €186.64, just 4.55% above the 52-week low of €178.52 and more than a third below the June high of €292.85. The 14-day relative strength index sits at 31.8, deep in oversold territory — a level that can sometimes signal a rebound but also may indicate the downward trend has further to run.

Analysts have been scrambling to reset expectations. Stifel’s David Grossman slashed his price target from $290 to $235 while maintaining a buy rating, arguing the issue is a temporary reallocation of client budgets toward AI spending rather than a structural problem. Oppenheimer went further, downgrading the stock to “Perform.” Among the 27 analysts covering IBM, the average price target has fallen from $298.30 to $273.40, with JPMorgan and Citi at $250 and $255 respectively, and HSBC at the low end with $191. On the other side, Dan Ives still sees a 64% upside from the current level, keeping his $350 target.

The sell-off has also rekindled talk of a breakup. Grossman’s sum-of-the-parts analysis assigns IBM an enterprise value of $257 billion — well above the current market cap of roughly $205 billion — with Red Hat alone worth $62.9 billion. But he tempered expectations, noting that a split would not necessarily unlock immediate value. Other analysts attribute the rout to execution failures rather than a weak AI market, pointing out that IBM has components like Red Hat, watsonx, and governance software but lacks a unified enterprise AI system.

Adding to the pressure, at least two law firms — Bleichmar Fonti & Auld and Hagens Berman Sobol Shapiro — have launched investigations into possible securities law violations. They are examining whether management misled investors about the sales pipeline, particularly regarding the slowdown in the IBM Z mainframe business and the $68 billion wealth destruction triggered by the preliminary report.

Yet amid the turmoil, IBM has been accelerating its product push. On July 8, the company commercially launched Lightwell, a Red Hat collaboration aimed at automated vulnerability remediation for open-source software, backed by a $5 billion investment and more than 20,000 engineers. A week later came new Power Systems and AI software, including Power Autonomous Operations — an AI agent that monitors and fixes system issues independently. The Power S1112 server will be available from July 24, with the autonomous operating software arriving in September.

On the AI governance front, IBM released AI Asset Discovery in watsonx.governance on July 9, designed to detect rogue AI agents and models inside enterprises. Watsonx.data as a Service version 2.4 followed on July 16, adding new data protection and agent-based RAG workflow capabilities. A multi-year partnership with ServiceNow, announced in June, aims to modernize legacy systems and make enterprise data available for AI applications. Longer term, IBM plans to invest over $10 billion in quantum computing over the next five years, with a fault-tolerant quantum computer targeted for 2029.

The bull case hinges on these new offerings offsetting weakness in the traditional infrastructure business. Preliminary figures showed infrastructure revenue down 7%, driven by sluggish mainframe sales — a sharp reversal from the 51% growth the Z-series posted in Q1. Clients appear to be deferring mainframe investments, partly out of concern over impending price increases, and pivoting toward servers, storage, and memory. Consulting revenue was flat, underscoring the gap between new product promises and current results.

With options pricing implying a 50% probability of a move greater than 6.59% in either direction on Wednesday, the market is braced for volatility. Investors will be listening for concrete signs that Lightwell, watsonx, and the new Power systems are gaining traction, as well as an updated full-year forecast. If revenue growth in Q3 falls below 3%, structural doubts about IBM’s business model are likely to intensify. The earnings call at 5 p.m. Eastern will decide whether the product offensive is gaining momentum — or whether the company’s core challenges run deeper than a single bad quarter.