What Happens To IBM Stock If Its Slowdown Lasts?
Over the past three months, IBM (IBM) stock lost 26%, while the S&P 500 gained 4.8%. During its July 22, 2026 earnings call, management acknowledged that second quarter results fell short of expectations. Tens of large deals failed to close on time, accounting for most of this shortfall. Executives believe customers delayed these deals rather than canceling them. How much of that business began trickling back before the quarter wrapped up?
About A Third Of Delayed Deals Closed Within Weeks
By the July 22 call, management said that about a third of the delayed deals had closed within three weeks. Executives took this as a good indication, though not yet full evidence, that customers had only postponed.
According to management, many clients redirected their budgets toward servers, storage, and memory. These buyers wanted to secure scarce hardware ahead of expected price increases.
Meanwhile, IBM’s growth has already slowed sharply. Revenue grew 1.1% from a year earlier in the latest quarter, down from a 9.5% pace in the prior period. Mainframe sales also fell 42% against a year-earlier quarter that featured the launch of a new model. Management now expects 2026 revenue to grow 4% to 5% before currency effects.
IBM Would Lose More Profit Than Sales
Software is not only IBM’s largest segment—generating $30.0 billion of sales in fiscal 2025—it is also the company’s primary profit engine. This unit missed expectations in the second quarter. However, management noted the shortfall was limited to one area sensitive to customers’ capital spending.
If the latest quarter repeated four times, a scenario that is not a forecast, IBM’s sales would total $68.6 billion a year. That compares to $69.1 billion over the last twelve months.
Profit would fall further. If the latest quarter simply repeated four times, IBM would earn $8.7 billion in a year, down from the $10.7 billion it posted over the last twelve months.
Investors would consequently pay more for each dollar of profit. IBM stock is currently priced at 19.4 times its earnings of the last twelve months. Based on the repeated quarter’s earnings, that same price equates to 24.0 times.
What Protects IBM If The Slowdown Lasts?
Strong cash flow and recurring revenue currently offer downside protection. IBM produced $13.1 billion of free cash flow over the last twelve months, compared to the $6.3 billion of dividends distributed in its last fiscal year. Even after the weak quarter, management maintained its forecast to grow free cash flow by about $1 billion in 2026.
The baseline of recurring business also expanded. IBM reported annual recurring revenue of $24.6 billion in the second quarter, up 8% from a year earlier.
The balance sheet offers less cushion. IBM carries $65.3 billion of debt against just $8.1 billion of cash and short-term investments.
How Would You Know IBM’s Slowdown Is Lasting?
The nearest indicator will be IBM’s third quarter revenue. The quarter has already ended, and the results are pending. During the July 22 presentation, management guided for third quarter growth to align with its full-year forecast of 4% to 5% before currency effects. A stronger dollar was expected to take 1.5 points off that growth. If growth falls well short of this forecast, it would suggest the delayed deals have still not closed.
Software results will provide an even clearer measure. Management expects Software to grow 6% to 8% in 2026. The low end of that range assumes customers keep spending as they did in the second quarter. If Software growth lands at or below 6% for 2026, it will show that customers continued to keep their money elsewhere through the second half.
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